R1D7757COV 3/25/02 10:22 AM Page 1 Commerc Marine Propuls Strength in Diversification CU RTISS - WR IGHT COR PORATION AN N UAL R EPORT 2001 R1D7757COV 3/25/02 10:22 AM Page 1 Navy Programs (Nuclear and Non-Nuclear) Nuclear Power Generation Commercial Jet Transports Fossil Power Generation Pulp and Paper Processing Industry Petrochemical/Chemical Military Transport and Fighter Aircraft Metalworking Oil and Gas Exploration/Refining Construction and Mining Equipment Space Programs High Speed Trains Ground Defense Vehicles Pharmaceutical Agricultural Equipment Business/Regional Jets Natural Gas Production and Transmission Automotive/Truck Marine Propulsion Unmanned Aerial Vehicles Automated Industrial Equipment R1D7757COV 3/25/02 10:22 AM Page 2 Financial Highlights (In thousands, except per share data; unaudited) 2001 2000 1999 P E R F O R M A N C E ( 1 ): Net sales Earnings before interest, taxes, depreciation, amortization and pension income Net earnings Normalized net earnings ( 2 ) Diluted earnings per share Normalized diluted earnings per share Return on sales Normalized return on sales Return on average assets Normalized return on average assets Return on average stockholders’ equity Normalized return on average stockholder’s equity New orders Backlog at year-end Y E A R- E N D F I N A N C I A L P O S I T I O N : Working capital Current ratio Total assets Stockholders’ equity Stockholders’ equity per share OT H E R Y E A R- E N D DATA : Depreciation and amortization Capital expenditures Shares of stock outstanding Number of registered stockholders Number of employees $ 343,167 $ 329,575 $ 293,263 107,069 62,880 40,633 6.14 3.97 19.0% 12.3% 15.0% 9.7% 21.7% 14.0% 326,475 242,257 149,861 3.0 to 1 500,428 349,954 34.73 74,247 41,074 37,910 4.03 3.72 12.5% 11.5% 10.3% 9.5% 15.0% 13.8% 299,403 182,648 70,888 39,045 34,042 3.82 3.33 13.6% 11.8% 10.9% 9.5% 16.4% 14.3% 295,709 212,820 $ 149,779 $ 124,438 3.9 to 1 409,416 290,224 28.97 3.2 to 1 387,126 258,355 25.73 14,734 19,354 $ 14,346 9,506 $ 12,864 19,883 10,074,725 10,017,280 10,040,250 9,898 2,625 3,602 2,286 3,854 2,267 $ $ D I V I D E N D S P E R S H A R E $ 0.54 $ 0.52 $ 0.52 (1) The performance ratios for 2001 and 1999 have been shown on a pro-forma basis, excluding the results of the acquired companies in those respective years. 2000 was not adjusted due to the immaterial impact. (2) Earnings have been adjusted to exclude the effects of environmental insurance settlements, postretirement benefits, postemployment costs, recapitalization costs, a gain on sale of real property, a net demutualization gain, and facility consolidation costs. N E T S A L E S ( $ 0 S A L E S P E R E M P LO Sales $343,167 Sales per em $1 97 98 99 00 350,000 300,000 250,000 200,000 150,000 100,000 R1D7757COV 3/25/02 10:22 AM Page 2 1 ST R E N G T H I N D I V E R S I F I C AT I O N 1 4 L E T T E R TO S H A R E H O L D E R S 1 9 Q UA RT E R LY R E S U LT S O F O P E R AT I O N S 1 9 CO N S O L I DAT E D S E L E C T E D F I N A N C I A L DATA 2 0 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L CO N D I T I O N A N D R E S U LT S O F O P E R AT I O N S 2 4 Q UA N T I TAT I V E A N D Q UA L I TAT I V E D I S C LO S U R E S A B O U T M A R K E T R I S K 2 5 R E P O RT O F T H E CO R P O R AT I O N 2 5 R E P O RT O F I N D E P E N D E N T A CCO U N TA N T S 2 6 CO N S O L I DAT E D F I N A N C I A L STAT E M E N T S 3 0 N OT E S TO CO N S O L I DAT E D F I N A N C I A L STAT E M E N T S Contents 4 5 CO R P O R AT E D I R E C TO RY A N D I N F O R M AT I O N e c r o F r i A N E T S A L E S ( $ 0 0 0 s ) S A L E S P E R E M P LOY E E ( $ ) O P E R AT I N G I N CO M E ( $ 0 0 0 s ) N E T E A R N I N G S ( $ 0 0 0 s ) 350,000 300,000 250,000 200,000 150,000 100,000 Sales $343,167 170,000 55,000 Reported $47,158 160,000 49,000 150,000 43,000 140,000 37,000 Sales per employee $146,569 130,000 31,000 120,000 25,000 Normalized $47,441 65,000 57,000 49,000 41,000 33,000 25,000 Reported $62,880 Normalized $40,633 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 . . S U : t i d e r c h p a r g o t o h P 2 2 - F e a R n h o J : y h p a r g o t o h P d e t c e l e S y t i C k r o Y w e N / G C V : n g i s e D r2d7757text 3/25/02 10:32 AM Page 1 Cur tiss-Wright Corporation is a diversified, global enterprise delivering highly engineered, technologically advanced, value-added products and services to a broad range of industries in the Motion Control, Flow Control and Metal Treatment market segments. Over the last five years, Curtiss-Wright has achieved a fundamental balance among its operating units that has effectively limited the Company’s overall dependence on any given industry or market. Corporate growth and diversification have been achieved through successful application of Curtiss-Wright’s considerable core competencies in engineering and precision manufacturing; adaptation of existing technologies to new markets through internal product development; and a disciplined program of strategic acquisitions of companies having synergistic, market-leading technologies and products. Solid financial performance in 2001 reflects the Corporation’s goal of achieving balanced growth through the implementation of these strategies. Curtiss-Wright’s future remains promising as it continues the strategic growth process and strives to set the standard of excellence in the markets it serves. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _1 r2d7757text 3/25/02 10:32 AM Page 2 M OT I O N CO N T R O L R E V E N U E ($000s) Sales $137,103 97 98 99 00 01 140,ooo 130,ooo 120,ooo 110,ooo 100,ooo 90,ooo r2d7757text 3/25/02 10:32 AM Page 3 Products and Ser vices S E CO N DA RY F L I G H T CO N T R O L A C T UAT I O N SY ST E M S A N D E L E C T R O M E C H A N I C A L T R I M A C T UATO R S W E A P O N S B AY D O O R A C T UAT I O N SY ST E M S I N T E G R AT E D M I S S I O N M A N A G E M E N T A N D F L I G H T CO N T R O L CO M P U T E R S D I G I TA L E L E C T R O M E C H A N I C A L A I M I N G A N D STA B I L I Z AT I O N SY ST E M S H Y D R O P N E U M AT I C S U S P E N S I O N SY ST E M S E L E C T R O M E C H A N I C A L T I LT I N G SY ST E M S F O R H I G H S P E E D T R A I N S F I R E CO N T R O L , S I G H T H E A D, A N D E N V I R O N M E N TA L CO N T R O L P R O C E S S O R S F O R M I L I TA RY G R O U N D V E H I C L E S CO M P O N E N T OV E R H AU L A N D LO G I ST I C S S U P P O RT S E RV I C E S MotionControl Curtiss-Wright’s Motion Control business segment is an industry leader in the design, development, manufacturing and maintenance of sophisticated, high-performance motion control components and integrated systems for aerospace, ground defense, and industrial equipment applications. Legacy capabilities in mechanical and hydromechanical component design and manufacture have been expanded to include design, analysis, and inte- gration of electromechanical and electrohydraulic systems, as well as complex electronic systems. Our products include flight control actuation systems for military and commercial aircraft, integrated mission management and flight control computers, digital aiming and stabilization systems, ammunition handling and fire control systems, suspension systems, perimeter intrusion detection systems, and high response linear actuators for industrial applications. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _3 r2d7757text 3/25/02 10:32 AM Page 4 CO M M E R C I A L J E T T R A N S P O RT S B U S I N E S S / R E G I O N A L J E T S M I L I TA RY T R A N S P O RT A N D F I G H T E R A I R C R A F T G R O U N D D E F E N S E V E H I C L E S U N M A N N E D A E R I A L V E H I C L E S AU TO M AT E D I N D U ST R I A L E Q U I PM E N T H I G H S P E E D T R A I N S M A R I N E P R O P U L S I O N S PA C E P R O G R A M S S E C U R I T Y SY ST E M S Major Markets Our formidable capabilities in Motion Control evolved from our base business of aircraft flight controls and utility actuation components and subsystems. Today, we are an integrated provider of design and manu- facturing solutions to a wide array of motion control applications and platforms for worldwide aerospace, defense, and industrial markets. Through our disciplined acquisition program and forward-thinking internal product development, we have continued to expand our technical capabilities and are now able to provide complete system-level solutions. Accordingly, Curtiss-Wright is well positioned to pursue and capture future military and commercial opportunities. 4 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 5 A P P L I C AT I O N S O F O U R H I G H LY E N G I N E E R E D A N D P R E C I S I O N M A N U FA C T U R E D M OT I O N C O N T R O L P R O D U C T S I N C L U D E : ( TO P ) M I S S I O N C R I T I C A L E L E C T R O N I C S Y ST E M S F O R G R O U N D D E F E N S E A N D U N M A N N E D A E R I A L V E H I C L E S ; ( C E N T E R ) L E A D I N G E D G E S L AT A N D T R A I L I N G E D G E F L A P A C T UAT I O N S Y ST E M S F O R C O M M E R C I A L A N D M I L I TA RY A I R C R A F T; ( B OT TO M ) W E A P O N S B AY D O O R A C T UAT I O N SY ST E M S F O R T H E N E X T G E N E R AT I O N F - 2 2 F I G H T E R A I R C R A F T. r2d7757text 3/25/02 10:32 AM Page 6 M E TA L T R E ATM E N T R E V E N U E ($000s) Sales $107,807 97 98 99 00 01 110,000 107,000 104,000 101,000 98,000 95,000 r2d7757text 3/25/02 10:32 AM Page 7 Our Metal Treatment business segment continues to extend its leadership position in shot peening, shot-peen forming, and heat treating. Through a combination of acquisitions and new plant openings, we continue to increase our network of regional facilities, which now total 42 in North America and Europe, a number unmatched by any other supplier of these services. Furthermore, our reed valve operation continues to expand its business. In addition to broadening the geographic reach of our services, we have worked to augment our metal treatment service offerings. To accommodate the requirements of our customers, we remain on the leading edge of technological advancement in the metal treatment industry. We are at the forefront of the development of Lasershot SM peening and the design of more efficient robotic equipment. MetalTreatment Products and Ser vices S H OT P E E N I N G S H OT- P E E N F O R M I N G L A S E R S H OT P E E N I N G H E AT T R E AT I N G P L AT I N G R E E D VA LV E M A N U FA C T U R I N G E N G I N E E R I N G / T E ST I N G A N D F I E L D S E RV I C E S C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _7 r2d7757text 3/25/02 10:32 AM Page 8 While almost half our metal treatment sales derive from various segments of the aerospace industry, the balance is spread across a number of industrial markets. The wide range of applications for our metal treatment services is reflected in a customer base in excess of 5,000. Our Metal Treatment business segment continues to maintain its leadership position even during downturns in its served markets. In 2001, we expanded our reach with the opening of a shot-peening facility in Germany and the acquisition of heat-treating facilities in Kansas and New Jersey. We will continue to pursue our strategy of expanding into attractive markets. Major Markets CO M M E R C I A L J E T T R A N S P O RT S B U S I N E S S / R E G I O N A L J E T S AU TO M OT I V E M E TA LW O R K I N G O I L A N D G A S E X P LO R AT I O N P O W E R G E N E R AT I O N A G R I C U LT U R A L E Q U I PM E N T CO N ST R U C T I O N A N D M I N I N G E Q U I PM E N T 8 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 9 A P P L I C AT I O N S O F O U R M E TA L T R E ATM E N T P R O C E S S E S I N C LU D E : ( TO P ) H I G H ST R E S S M E TA L CO M P O N E N TS F O R O I L A N D GA S E X P LO R AT I O N E Q U I PM E N T; (C E N T E R ) W I N G F O R M I N G F O R B U S I N E S S A N D R E G I O N A L A I R C R A F T; ( B OT TO M ) H E AV Y W E A R CO M P O N E N TS F O R T H E T R U C K A N D AUTO M OT I V E I N D U ST RY. r2d7757text 3/25/02 10:32 AM Page 10 F LO W CO N T R O L R E V E N U E ($000s) Sales $98,257 97 98 99 00 01 100,000 85,000 70,000 55,000 40,000 25,000 1 0 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 11 Products and Ser vices M I L I TA RY A N D CO M M E R C I A L N U C L E A R / N O N - N U C L E A R VA LV E S ( G LO B E , G AT E , CO N T R O L , S A F E T Y, S O L E N O I D, R E L I E F ) ST E A M G E N E R ATO R CO N T R O L E Q U I PM E N T R E A C TO R P L A N T CO N T R O L E Q U I PM E N T A DVA N C E D H Y D R AU L I C SY ST E M S A I R D R I V E N F L U I D P U M P S E N G I N E E R I N G , I N S P E C T I O N , A N D T E ST I N G S E RV I C E S FlowControl Our Flow Control business segment began as a supplier of valves to the U.S. Navy for use in nuclear propulsion systems on submarines. Today, it designs, manufactures, distributes, and services a broad range of highly engineered flow control products for severe service military and commercial applications. We have expanded our product and service offerings through selective acquisitions and internal development programs. With the recent addition of Peerless Instrument, we now have the capability to design and fabricate sophisticated electronic control systems for flow control applications. Furthermore, the acquisitions of Solent & Pratt and Deltavalve have broadened our product base and allow us to better serve severe duty applications for the worldwide oil and gas markets. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _1 1 r2d7757text 3/25/02 10:32 AM Page 12 N AV Y P R O G R A M S ( N U C L E A R A N D N O N - N U C L E A R ) P O W E R G E N E R AT I O N ( N U C L E A R A N D F O S S I L ) P R O C E S S I N G I N D U ST RY O I L A N D G A S R E F I N I N G P E T R O C H E M I C A L /C H E M I C A L N AT U R A L G A S P R O D U C T I O N A N D T R A N S M I S S I O N P H A R M A C E U T I C A L P U L P A N D PA P E R AU TO M OT I V E / T R U C K Flow Control has achieved rapid and significant growth as it continues to sell its specialized technologies and capabilities to non-traditional markets. While the U.S. Navy and commercial nuclear power generation were once its main markets, Flow Control has expanded its target markets to include petrochemical, oil and gas, and process industries. We have also improved our capabilities to service the global marketplace. In addition to participating in new construction programs, we provide overhaul, repair, and engineering services, as well as supply replacement spare parts. Major Markets 1 2 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 13 A P P L I C AT I O N S O F O U R H I G H LY E N G I N E E R E D A N D P R E C I S I O N M A N U FA C T U R E D F L O W C O N T R O L P R O D U C T S I N C L U D E : ( TO P ) N U C L E A R A N D N O N - N U C L E A R P R O G R A M S F O R T H E U . S . N AV Y; ( C E N T E R ) P R O C E S S A P P L I C AT I O N S I N P E T R O C H E M I C A L / C H E M I C A L A N D P E T R O L E U M P R O D U C T I O N / R E F I N I N G M A R K E T S ; ( B OT TO M ) CO M M E R C I A L P O W E R G E N E R AT I O N ( F O S S I L A N D N U C L E A R ) . r2d7757text 3/25/02 10:32 AM Page 14 MARTIN R. BENANTE CHAIRMAN AND CHIEF EXECUTIVE OFFICER ...we have the utmost confidence that we will continue to achieve solid financial results during this challenging economic period as we build on our carefully constructed foundation, leveraging our engineering leadership, industry reputation, and leading market positions. to our Shareholders We are proud to report our sixth consecutive year of revenue build on our carefully constructed foundation, leveraging our increases and third consecutive year of normalized earnings engineering leadership, industry reputation, and leading market growth in 2001. This was accomplished despite the worst decline positions. Including 2001 acquisitions, our current annual sales in industrial output since 1981–82, the first economic recession run rate makes us a $400 million company. Our actual sales have in a decade, and the economic and social realities of September grown from $171 million in 1996 to $343 million in 2001. This 11th. While we are not immune to external market forces, our represents a compound annual growth rate of 15%, meeting our strategies for producing balanced growth through diversification long-term financial objectives. We firmly believe in our ability to will help Curtiss-Wright through these difficult times. Serious sustain or exceed this growth rate in the future. long-term investors will always be attracted to premier compa- nies with consistent and substantial earnings growth. This is something we have demonstrated in the past and for which we continue to strive. We move forward into 2002 confident that our efforts have positioned us well to capitalize on our strengths and produce superior performance for our shareholders. Independent recognition of our success is particularly satisfying because it validates the progress we have made in many key areas. In 2001, for the third consecutive year, Curtiss-Wright was recognized by Forbes magazine as one of America’s 200 Best Small Companies. Flight International cited us as one of the most profitable aerospace companies in the world, ranking us 19th Our success in realizing substantial earnings growth is the result in profitability among our peers. In addition, a LasershotSM mark- of deliberate efforts to balance organic and external growth ing system developed by our subsidiary, Metal Improvement in new products, technologies, services, and markets. We take Company, working with Lawrence Livermore National great pride in our consistent growth record. Further, we have Laboratory, was chosen by R&D Magazine as one of this year's the utmost confidence that we will continue to achieve solid 100 most significant technological advances. These awards financial results during this challenging economic period as we speak volumes about the talent and quality of our employees. 1 4 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 15 GROWTH THROUGH ACQUISITIONS The acquisitions of Lau Defense Systems and Vista Controls provide Acquisitions play a major role in our balanced growth strategy. access to North American military armored vehicle manufacturers In 2001, we completed seven key acquisitions that strengthened and opens the door to opportunities for other commercial each of our business segments and enhanced our market positions and military applications. Their products and technology are a through the addition of new technologies, products, and markets. perfect complement to the aiming and stabilizing products New Technologies and Products During 2001, we strengthened our position as a niche leader in industrial technology. Our acquisitions added sophisticated electronic control component and systems technologies used in intrusion detection, firing, aiming and stabilizing systems, and unmanned flight control. We also acquired other advanced technologies in our Flow Control business segment which enhance and broaden our offerings in Curtiss-Wright’s current markets. These include proprietary valves for the processing industry and state-of-the- art electronic controls for flow control systems for the U.S. Navy. Expanded Market Oppor tunities The acquisitions we made in 2001 also improved our position as a global competitor. Our pursuit of the defense electronics market, for example, is a key strategic initiative and provides a compelling long-term growth opportunity. Our acquisitions have materially improved our position within the defense market and will position us to available through our European operation. As a result, we can now provide a complete systems capability that can be cross- marketed to two major military armored vehicle markets. Lau’s antipersonnel sensing systems will also broaden our reach into new markets by providing stationary and mobile perimeter security defenses for military and commercial markets. The addition of Solent & Pratt expands our markets to include the oil and gas industry in Northern Europe. We will leverage its distribution network and customer base to cross-sell our existing line of pressure relief valves used in the North American oil and gas industry. Another strategic goal has been to continually expand our geographic network of metal treatment facilities. The addition of two such facilities in Kansas and New Jersey brings the total facilities serving North America and Europe to 42, further diversifying our existing markets and customer base. benefit from the expected growth in defense spending. Looking forward, we intend to expand further into markets we currently serve and position the Company to exploit niche opportu- nities as a supplier of high value-added products and services. 2001 ACQU ISITIONS MOTION CONTROL: FLOW CONTROL: METAL TR EATMENT: Lau Defense Systems and Vista Controls Designs and manufactures highly engineered “mission critical” defense electronic controls for aiming and stabilizing systems; also designs and manufactures fixed-perimeter and mobile intrusion detection systems. Solent & Pratt Engineering Peerless Instrument Co. Designs and manufactures Designs and manufactures metal-seated, high-pressure sophisticated electronic industrial valves for the control systems for flow processing industry. control applications in the nuclear Navy. Deltavalve USA Designs, manufactures, and globally distributes high-performance butterfly and sliding gate valves for the processing industry. Bodycote Thermal Processing (Wichita) Heat-treating services princi- pally serving aerospace and agriculture markets. Ironbound Heat Treating Company Heat-treating services for diverse markets including tool and die, automotive, aerospace, and medical. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _1 5 r2d7757text 3/25/02 10:32 AM Page 16 DIVERSI FICATION TH ROUGH ACQU ISITIONS 2001 Sales Distribution (Pro Forma) BEFOR E ACQU ISITIONS 37.4% Commercial Aerospace 20.5% Military /Defense 13.8% General Industrial 10.5% Power Generation 9.7% Process Industry (Oil &Gas) 8.1% Automotive/Transportation AFTER ACQU ISITIONS 30.9% Commercial Aerospace 32.3% Military /Defense 11.9% General Industrial 8.6% Power Generation 9.6% Process Industry (Oil &Gas) 6.7% Automotive/Transportation BUSINESS OUTLOOK Our mix of products for aerospace, land-based, and naval defense markets have never been stronger, enabling meaningful participation in a variety of military programs. We are well posi- tioned on a balanced blend of projects that will provide both short- and long-term benefits. For example, we participate in the retrofit programs for the Abrams tank and Bradley armored personnel carrier, as well as the F-22 Raptor and V-22 Osprey, which are scheduled for production ramp-ups over the next several years. We also continue to participate in new project development programs like Lockheed Martin’s F-35 Joint Strike Fighter, Boeing’s Unmanned Combat Aircraft Vehicle, and the Global Hawk unmanned reconnaissance aircraft that has played a vital role in the current war on terrorism. Our participation in the U.S. Navy’s nuclear submarine and aircraft carrier production has been significantly enhanced with the recent addition of Peerless Instrument’s electronic flow control products and tech- nology, which integrate well with our traditional line of leakless valves and other flow control products. We are also leveraging We expect 2002 to be another year of growth for Curtiss-Wright our strong industry reputation and relationship with the Navy despite anticipated below-average global economic activity and to expand into non-nuclear applications. particular weakness in the commercial aerospace markets. Our diverse business segments, markets served, recent acquisitions, and internal expansion efforts should fuel our growth in 2002 and beyond. Over the past several years, we have added products and services that expand our geographic reach and position us in new indus- trial markets. We will continue this growth strategy by further extending into related markets and developing new products We are particularly enthusiastic about our improved position in and applications for existing technology. the military defense industry. We have been seizing opportunities in this market during the past decade of declining military spending. As U.S. defense programs compensate for past spend- ing reductions and modernize based on new demands, our diverse array of established and new products and technologies position us to reap the benefits of this changing environment. Technology has been, and will continue to be, the cornerstone of Curtiss-Wright’s success. It is the fiber that weaves through and binds together our diverse business segments, giving us the competitive advantage needed to sustain growth. Our objective is not only to maintain but also to extend our technological leadership through a combination of internal development and 1 6 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757text 3/25/02 10:32 AM Page 17 ...we are committed to creating shareholder value by executing our strategy, making sound business decisions, and achieving our financial targets. Our diversification strategy and ongoing emphasis on technology will continue to bring growth opportunities in each of our three business segments. acquisitions. For example, we have developed innovative laser OUR SHAREHOLDER BASE HAS BEEN BROADENED and robotic shot-peening processes that will strengthen our lead- During 2001, we also completed the recapitalization of our com- ership position in shot-peening services. Our 2001 acquisitions mon stock. This transaction allowed Unitrin, Inc., to distribute its also bring numerous innovative and promising technologies to 44 percent equity position in Curtiss-Wright to its approximately our Motion Control and Flow Control business segments. 8,000 registered shareholders. We believe the recapitalization Curtiss-Wright’s exceptionally strong balance sheet will provide will create long-term shareholder value and represents a mile- the financial resources necessary to continue internal expan- sion and make additional prudent, accretive acquisitions that further strengthen the Company’s products, technology base, stone in our efforts to improve our stock’s liquidity, broaden our shareholder base, and attract additional institutional investors. We welcome our new shareholders and are confident that their and market position. Even with the acquisition activity in 2001, direct ownership of Curtiss-Wright will prove rewarding. we finished the year with $67 million in cash and $21 million We begin 2002 confident in our ability to build on our solid in total debt. Our business continues to generate strong cash business foundation and generate long-term shareholder value. flow from operations, and we have $76 million available under Although 2002 is likely to present a challenging business envi- existing credit facilities. SALE OF OUR WOOD-RIDGE INDUSTRIAL PROPERTY ronment, we are committed to creating shareholder value by executing our strategy, making sound business decisions, and achieving our financial targets. Our diversification strategy and In our efforts to focus on core operations and better utilize ongoing emphasis on technology will continue to bring growth our resources, we sold our Wood-Ridge, New Jersey business opportunities in each of our three business segments. complex in December 2001. This transaction will net the Company approximately $33 million in cash. The property has been subject to environmental clean-up obligations since the early nineties which, until now, have prevented us from realizing a sale price reflective of its true value. Although clean-up obligations remain with the Company, we have been successful in reaching a price representative of its market value. The proceeds are now available to invest in projects that produce stronger returns and enhance long-term shareholder value. A talented and dedicated team of employees is a critical element to any business success, and we enjoy the benefit of exceptional people. They have been and will continue to be instrumental in identifying and capitalizing on growth opportunities. They are a truly invaluable resource for Curtiss-Wright and we appreciate and commend their hard work and dedication. We would also like to express our gratitude for the long-term support of our customers, suppliers, and you, the owners of the Company. Martin R. Benante Chairman and Chief Executive Officer C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _1 7 r2d7757text 3/25/02 10:32 AM Page 18 Financial Statements r2d7757p19p23 3/25/02 10:46 AM Page 19 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) First Second Third Fourth 2001 Net sales Gross profit Net earnings Earnings per share: Basic earnings per share Diluted earnings per share Dividends per share 2000 Net sales Gross profit Net earnings Earnings per share: Basic earnings per share Diluted earnings per share Dividends per share $ 79,917 30,011 9,219 $ $ $ .92 .90 .13 $82,237 28,929 9,229 $ $ $ .92 .91 .13 $ 86,604 32,837 10,465 $ $ $ 1.04 1.02 .13 $83,050 30,471 10,644 $ 1.06 $ 1.05 .13 $ $ 79,420 30,187 8,723 $ $ $ .87 .85 .13 $81,878 30,767 11,079 $ 1.11 $ 1.09 .13 $ $ 97,226 34,782 34,473 $ $ $ 3.42 3.37 .15 $82,410 30,803 10,122 $ 1.01 .99 $ .13 $ CONSOLIDATED SELECTED FINANCIAL DATA (In thousands, except per share data) 2001 2000 1999 1998 1997 Net sales Net earnings Total assets Long-term debt Basic earnings per share Diluted earnings per share Cash dividends per share $343,167 62,880 500,428 21,361 6.25 6.14 .54 $ $ $ $329,575 41,074 409,416 24,730 4.10 4.03 .52 $ $ $ $293,263 39,045 387,126 34,171 3.86 3.82 .52 $ $ $ $249,413 29,053 352,740 20,162 2.85 2.82 .52 $ $ $ $219,395 27,885 284,708 10,347 2.74 2.71 .50 $ $ $ See notes to consolidated financial statements for additional financial information. FORWARD-LOOKING STATEMENTS This Annual Report contains not only historical information but also forward-looking statements regarding expectations for future company performance. Forward-looking statements involve risk and uncertainty. Please refer to the Company’s 2001 Annual Report on Form 10-K for a discussion relating to forward-looking statements contained in this Annual Report and factors that could cause future results to differ from current expectations. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 1 9 r2d7757p19p23 3/25/02 10:46 AM Page 20 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Curtiss-Wright Corporation posted consolidated net sales of $343.2 million and net earnings of $62.9 million, or $6.14 per diluted share, for the year ended December 31, 2001. Sales for the current year increased 4% over 2000 sales of $329.6 million, and 17% over 1999 sales of $293.3 million. Net earnings for 2001 improved 53% over prior year net earnings of $41.1 million, or $4.03 per diluted share, and 61% over net earnings of 1999, which totaled $39.0 million, or $3.82 per diluted share. Net earnings for all three years include sev- eral nonrecurring items, which impact a year-to-year comparison. The following table depicts the Corporation’s “normalized” results, which should present a clearer picture of after-tax performance: Normalized Net Earnings: (In thousands, except per share figures) 2001 2000 1999 Net earnings $62,880 $41,074 Gain on sale of real property (22,999) (894) $39,045 — Environmental insurance settlements, net Postretirement and post- employment adjustments, net Facility consolidation costs Recapitalization costs Net nonrecurring benefit gain — — — 1,500 (748) (1,894) (7,354) (1,336) 50 910 — — 2,351 — — Normalized net earnings $40,633 $37,910 $34,042 Normalized net earnings per diluted share $ 3.97 $ 3.72 $ 3.33 Sale of Real Property In December 2001, the Corporation sold its Wood-Ridge Business Complex which resulted in a net after-tax gain of $23 million. In September 2000, the Corporation recorded a net after-tax gain of $0.9 million on the sale of a nonoperating Metal Treatment facility located in Chester, England. Environmental Insurance Settlements The Corporation had previously filed lawsuits against several insurance carriers seeking recovery for environmental costs and reached settlements with two carriers in 1999 and the remaining carriers in 2000. The amounts reported above are recoveries, net of associated expenses and additional expenses related to ongoing environmental liabili- ties of the Corporation. Further information on environmental costs is contained in Note 13 to the Consolidated Financial Statements. Postretirement and Postemployment Adjustments In 2000, the Corporation recognized a reduction in general and administrative expenses related to the curtailment of postretirement benefits associated with the closing of the Fairfield, New Jersey facility, partially offset by the recognition of other postemployment costs. Further information on retirement plans is contained in Note 14 to the Consolidated Financial Statements. Facility Consolidation Costs Beginning in 1998, the Corporation incurred costs associated with the consolidation of manufacturing operations within the Motion Control segment. These costs include costs relative to the shutdown of the Fairfield, New Jersey facility, the consolidation of manufacturing operations into an expanded Shelby, North Carolina facility, and the move of certain overhaul and repair operations to a new location in Gastonia, North Carolina. 2 0 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S Recapitalization Costs During 2000 and 2001, the Corporation incurred costs related to a recapitalization of its stock. Further information on this transaction is contained later in this section— see “Recapitalization.” Net Nonrecurring Benefit Gain During 2001, the Corporation recorded a pre-tax gain of approximately $3 million ($1.8 million after-tax) resulting from a nonrecurring benefit related issue. Offsetting this gain are nonrecurring charges for employee benefit related expenses of $1.8 million pre-tax ($1.1 million after-tax). Further information on these transactions are contained later in this section — see “Corporate and Other Expenses.” Excluding these nonrecurring items,“normalized” net earnings for 2001 of $40.6 million, or $3.97 per diluted share, were 7% higher than “normalized” net earnings of $37.9 million, or $3.72 per diluted share, for 2000 and 19% higher than “normalized” net earnings of $34.0 million, or $3.33 per diluted share, for 1999. Excluding the net recoveries from insurance settlements and facility consolida- tion costs,“normalized” operating income from the Corporation’s three operating segments totaled $49.4 million for 2001, a slight improvement over “normalized” operating income of $49.2 million in 2000 but 17% above 1999’s $42.1 million. The improvement in financial results comparing 2001 to 2000 largely reflects the contributions of recent acquisitions made by the Corporation. See Note 2 to the Consolidated Financial Statements for further information regarding acquisitions. Sales and operating income of the businesses acquired in 2001 were $13.9 million and $0.5 million, respectively. Including the seven businesses acquired this year, the Corporation has acquired thirteen new businesses since 1998. In addition to the contribution of the new acquisitions, 2001 benefited from higher sales of aerospace OEM products, products provided to the oil and gas markets and shot-peening services.These increases were offset by significant decreases in our aerospace overhaul and repair services and our automotive-related businesses. Also adversely impacting financial results for 2001 was a significant decline in foreign exchange rates. Comparing this year’s results to those of the prior year, the fluctuation in foreign currency rates negatively impacted sales by $3.0 million and operating income by $1.1 million. Improvements in 2000 from 1999 reflect the full year contributions from the 1999 acquisitions of Farris Engineering (“Farris”), Sprague Products (“Sprague”) and Metallurgical Processing, Inc. New orders received in 2001 totaled $326.5 million, which represents a 9% increase over 2000 new orders of $299.4 million and a 10% increase over new orders received in 1999. Backlog at December 31, 2001 stands at $242.3 million compared with $182.6 at December 31, 2000 and $212.8 million at December 31, 1999. Backlog acquired with the 2001 acquisitions was approximately $76 million. It should be noted that metal treatment services, repair and overhaul services and after-market sales, which represent a significant amount of the r2d7757p19p23 3/25/02 10:46 AM Page 21 Corporation’s total sales for 2001, are sold with very modest lead times. Accordingly, the backlog for these businesses is less of an indication of future sales than the backlog of the majority of the Motion Control and Flow Control segments, in which a significant portion of sales are derived from long-term contracts. Segment Per formance Motion Control The Corporation’s Motion Control segment posted sales of $137.1 million for 2001, an 8% increase over 2000 sales of $126.8 million. The higher sales largely reflect the acquisitions of Lau Defense Sys- tems (“LDS”) and Vista Controls (“Vista”) in November, 2001 and increased revenue recognized under the percentage of completion method of accounting for long-term contracts at the segment’s Drive Technology business in Europe.The 2001 sales from the LDS and Vista acquisitions amounted to $9.6 million. Also affecting 2001 sales were lower aerospace repair and overhaul services com- pared to the prior year.The softening in the demand for these ser- vices was exacerbated by the impact of the events of September 11th.This decline was offset by higher shipments of 737 and F-22 OEM products and strong growth in the global ground defense business as compared to the prior year. In addition, foreign currency translation adversely impacted sales in 2001 from 2000. Operating income for 2001 increased 25% over the prior year. Excluding acqui- sitions, this increase was 20% due mainly to profit improvements in aerospace OEM products generated by the consolidation of produc- tion facilities combined with an improved cost structure.These improvements have more than offset the decline in operating income realized in the repair and overhaul business resulting pri- marily from lower sales volume. Foreign currency translation also had a $0.1 million negative impact on 2001 operating income. Motion Control segment sales for 2000 were 2% above 1999 sales of $124.2 million. Sales of aerospace overhaul and repair services for 2000 improved over 1999 as did sales relative to the Boeing 757 retrofit program.These increases were largely offset by lower Boeing commercial production. Sales of Motion Control products for 2000 also reflected continued growth in the ground defense aiming and stabilization markets from its Drive Technology business as compared to the prior year. Operating income for the Motion Control segment showed substantial improvements in 2000. Included in 1999 results were costs related to the consolidation of the Fairfield, NJ operation into Motion Control’s low-cost, state-of-the-art facilities in North Carolina. Expenses related to the consolidation activities totaled approximately $3.8 million in 1999. In 2000, the Corporation began to realize cost savings relative to the consolidation.The cost savings realized in 2000 were partially offset by lower operating income in the overhaul and repair business due to lower gross margins resulting from softening in many of their served markets. Metal Treatment 2001 sales for the Corporation’s Metal Treatment segment totaled $107.8 million or 2.4% above sales for 2000 of $105.3 million.The slight improvement in 2001 sales resulted from increases in the North American and European shot-peening business which were largely offset by decreases in the segment’s heat-treating opera- tions, particularly those related to the automotive markets served. In addition, foreign currency translation adversely impacted sales in 2001 from 2000. In 2001, operating income was 17.0% below that for the prior year resulting primarily from increased operating costs which included facility start-up costs associated with acquisitions occurring in late 2000 and 2001 and higher energy costs. Foreign currency translation also had a $0.9 million negative impact on 2001 operating income.The two acquisitions made in 2001 had minimal effect on the segment’s sales and operating income. Sales improvements in 2000 from the prior year reflect an acquisi- tion, which occurred in mid-1999, and increased sales volume in the commercial European aerospace market, which were largely offset by the negative effect of foreign currency translation versus 1999. Operating income for the Metal Treatment segment showed a slight decrease when comparing 2000 to 1999. For 2000, improve- ments in heat- treating operations were largely offset by lower income at both European and North American shot-peening opera- tions. During 1999, three of this segment’s operations relocated into larger facilities and incurred higher operating costs and nonrecur- ring start-up costs as a result. As with sales, income from European shot-peening operations were adversely impacted by foreign cur- rency translation. Foreign currency translation adversely reduced operating income in 2000 by $1.6 million. Flow Control The Corporation’s Flow Control segment posted sales of $98.3 mil- lion for 2001, slightly above sales of $97.5 million for 2000. 2001 sales included approximately $3.9 million related to three acquisi- tions made during the year.The segment also benefited from higher sales to the U.S. Navy and strong demand in the petrochemi- cal and oil and gas markets, primarily for maintenance, repair and overhaul applications. Offsetting these gains was the impact of the significant downturn in the automotive and heavy truck markets served and the sale of the segment’s PME distribution business in the third quarter of 2000. Operating income for the year increased by more than 4% even though sales were essentially flat. Excluding the three 2001 acqui- sitions, the segment’s improved costs structures and operating efficiencies resulted in a 7.7% improvement in 2001 operating income as compared to the prior year. Foreign currency translation also had a $0.1 million negative impact on 2001 operating income. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 2 1 r2d7757p19p23 3/25/02 10:46 AM Page 22 The Corporation’s Flow Control segment reported sales for 2000 which were 50% above 1999’s sales of $65.0 million. Operating income also showed significant improvement.The significant improvements in both sales and operating income were largely the result of the acquisition of the Farris and Sprague businesses, which occurred in August of 1999. Sales and operating income from the traditional product lines in the Flow Control segment exceeded the levels achieved in 1999. Sales of marine product lines to the U.S. Navy performed well, as did sales from retrofit and service pro- grams for domestic nuclear utilities, and the sale of valves for new foreign nuclear power plant construction programs. Industrial valve sales also performed well in 2000 notwithstanding general softness in two primary markets — petrochemical and chemical process industries. Corporate and Other Expenses Included in operating income for 2001 is a net nonrecurring benefit gain of $1.2 million, which consists of an approximate $3.0 million gain resulting from the demutualization of an insurance company in which the Corporation was a policyholder, partially offset by $1.8 million of nonrecurring employee benefit related costs which are included in general and administrative expenses in the state- ment of earnings. Operating income also includes $1.5 million in costs associated with the Corporation’s Recapitalization (see “Recapitalization” later in this section for more information). Included in nonsegment operating income for 2000 is a $2.9 million benefit resulting from the curtailment of postretirement medical coverage for former employees of the Corporation’s Fairfield, NJ plant due to its closure in December 1999, offset partially by post- employment expenses related to the retirement of the former Chairman and Chief Executive Officer. Also 2000 results included administrative expenses of approximately $0.9 million associated with the Corporation’s recapitalization. Operating income for 1999 included income related to the termi- nation of benefits for former employees of its Buffalo, NY plant. Other Revenues The Corporation recorded other nonoperating net revenues for 2001 aggregating $56.2 million compared with $15.5 million in 2000 and $13.4 million in 1999. Of the $56.2 million generated in 2001, $38.9 million relates to the pre-tax gain resulting from the sale of the Wood-Ridge Business Complex, which is more fully described in Note 3 to the Consolidated Financial Statements. Net investment income of $2.6 million decreased from the prior year’s $2.9 million due to a lower cash position resulting from the funding of acquisi- tions and lower interest rates. Net noncash pension income increased 41% to $11.0 million for 2001 due primarily to the Corporation’s overfunded pension plan.The amount recorded as pension income 2 2 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S reflects the extent to which the return on plan assets exceeds the cost of providing benefits in the same year, as detailed further in Note 14 to the Consolidated Financial Statements. Rental income in 2000 declined from the previous year largely due to the settlement of a real estate tax appeal recorded in 1999. Also in 2000, the Corpo- ration sold a nonoperating property in Chester, England resulting in a net pre-tax gain of approximately $1.4 million. Changes in F inancial Position: Liquidity and Capital Resources There were a number of transactions which occurred during 2001 that had a significant impact on the Corporation’s working capital. These transactions included the sale of the Wood-Ridge Business Complex for $51.0 million, a $1.75 million reimbursement from Unitrin Inc. (“Unitrin”) of previously expended recapitalization costs and the acquisition of seven businesses with an aggregate cash outflow of $64.1 million. As a result, the Corporation’s working capital remained flat at December 31, 2001, totaling $149.9 million as compared with $149.8 million at December 31, 2000.The ratio of current assets to current liabilities declined to 3.0 to 1 at December 31, 2001 compared with 3.9 to 1 at the end of 2000.The Corporation’s balance of cash and short-term investments totaled $67.2 million at December 31, 2001, a decrease of $4.3 million from the balance at December 31, 2000. Working capital changes were highlighted by increases in accounts receivable of $18.5 million, inventories of $7.1 million and current liabilities of $23.8 million.With the exception of the income taxes payable component of current liabilities, these increases are largely due to the seven acquisitions which occurred during the year.The increase in income taxes payable is a result of the gain associated with the sale of the Wood-Ridge Business Complex. Excluding the effect of the current year’s acquisitions, days sales outstanding at December 31, 2001 decreased to 59 days from 62 days at December 31, 2000 while inventory turnover increased to 4.2 turns versus 3.7 turns at December 31, 2001. At December 31, 2001, the Corporation had two credit agreements in effect aggregating $100.0 million with a group of five banks.The Revolving Credit Agreement commits a maximum of $60.0 million to the Corporation for cash borrowings and letters of credit.The Corporation also has in effect a Short-Term Credit Agreement, which allows for cash borrowings of $40.0 million.The unused credit available under these agreements at December 31, 2001 was $76.2 million. Cash borrowings under the Revolving Credit Agree- ment were $8.0 million at December 31, 2001 and were $11.3 million at December 31, 2000. During 2001, the Corporation paid $3.4 million towards its Swiss franc denominated loan, financed under the Revolving Credit Agreement and paid off two Industrial Revenue Bond loans totaling approximately $5.3 million. r2d7757p19p23 3/25/02 10:46 AM Page 23 Capital expenditures were $19.4 million in 2001, as compared to $9.5 million spent in 2000 and $19.9 million in 1999. Principal expenditures were for additional facilities and machinery and equipment. Capital expenditures in 2001 included the purchase of a new facility and an investment in a new ERP computer system at one of the Corporation’s major facilities. Capital expenditures in 1999 included construction of a new, state-of-the-art Metal Treatment facility in Chester, England. In 2002, capital expenditures are expected to remain consistent with 2001 levels due to the continued expansion of the segments. Cash generated from operations and current short-term invest- ment holdings are considered adequate to meet the Corporation’s operating cash requirements for the upcoming year, including anticipated debt repayments, planned capital expenditures, dividends, satisfying environmental obligations and working capital requirements. The Corporation acquired thirteen businesses since 1998 and expects to continue to seek acquisitions that are consistent with its strategy. Past acquisitions have been funded with available cash. As noted in Note 2 to the Consolidated Financial Statements, certain acquisition agreements contained contingent purchase price adjustments. Future acquisitions, if any, may be funded by cash, debt or equity. However, in compliance with certain provisions of the Internal Revenue Code and recapitalization agreements (see also Recapitalization below), the Corporation has certain restrictions on the use of its equity, as set forth in its definitive proxy materials filed with the U.S. Securities and Exchange Commission on September 5, 2001. Recapitalization As previously announced, on October 26, 2001, the Corporation’s shareholders approved a recapitalization plan, which enabled Unitrin to distribute its approximate 44% equity interest in Curtiss- Wright to its shareholders on a tax-free basis. Under the recapitalization plan, and in order to meet certain tax requirements, Unitrin’s approximately 4.4 million shares were exchanged for an equivalent number of shares of a new Class B Common Stock of Curtiss-Wright which are entitled to elect 80% of Curtiss-Wright’s Board of Directors. After such exchange, Unitrin immediately distributed the Class B shares to its approximately 8,000 registered stockholders in a tax-free distribution.The holders of the outstanding shares of Curtiss-Wright are entitled to elect up to 20% of the Board of Directors after the distribution. Other than the right to elect Directors, the two classes of stock vote as a class (except as required by law) and are equal in all other respects.The new Class B Common Stock was listed on the New York Stock Exchange, effective November 29, 2001. Under the terms of the recapitalization agreement reached between Unitrin and Curtiss-Wright, Unitrin agreed to reimburse the Corporation for certain costs associated with the recapitaliza- tion up to a maximum of $1.75 million.This amount was received subsequent to the recapitalization. Critical Accounting Policies Revenue recognition The Corporation uses the percentage- of-completion method for recognizing revenue for many of its long-term contracts.This method recognizes revenue as the con- tracts progress as opposed to the completed contract method which recognizes revenue when the contract is completed.The percentage-of-completion method requires the use of estimates as to the future costs that will be incurred.These costs include material, labor and overhead. Factors influencing these future costs include the availability of materials and skilled laborers. The Corporation purchases materials for the manufac- Inventory ture of components for use in its contracts and for use by its repair and overhaul businesses.The decision to purchase a set quantity of a particular item is influenced by several factors including: current and projected cost; future estimated availability; existing and projected contracts to produce certain items; and the estimated needs for its repair and overhaul business.The Corporation estimates the net realizable value of its inventories and establishes reserves to reduce the carrying amount of these inventories as necessary. The Corporation, in consultation with its actuary, Pension assets determines the appropriate assumptions for use in determining the liability for future pensions and other postemployment benefits. In 2001, the Corporation recognized pension income of approximately $11 million, as amounts funded for the pension plan in prior years together with earnings on those assets, exceeded the calculated liability. As of December 31, 2001, the pension trust was in an overfunded position of approximately $71 million, which will be recognized in income in future years.The timing and amount to be recognized each year is dependent on the demographics and earnings of the plan participants, the interest rates in effect in future years, and the actual investment returns of the assets in the pension trust. The Corporation provides for environ- Environmental reserves mental reserves when, in conjunction with its internal and external counsel, it determines that a liability is both probable and estimable. In many cases, the liability is not fixed or capped when the Corporation first records a liability for a particular site. Factors that affect the recorded amount of the liability in future years include: the Corporation’s participation percentage due to a settle- ment by or bankruptcy of other Potentially Responsible Parties; a change in the environmental laws requiring more stringent C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 2 3 r2d7757p24p25 3/25/02 10:47 AM Page 24 requirements; a change in the estimate of future costs that will be incurred to remediate the site; and changes in technology related to environmental remediation. Goodwill and other intangible assets At December 31, 2001, the Corporation has recorded $91 million in net goodwill and other intangible assets related to acquisitions made in 2001 and prior years.The recoverability of these assets is subject to an impairment test based on the estimated fair value of the underlying businesses. These estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include: the continued market acceptance of the products and services offered by the businesses; the development of new prod- ucts and services by the businesses and the underlying cost of development; the future cost structure of the businesses; and future technological changes. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142,“Goodwill and Other Intangible Assets.” SFAS No. 141, which requires all business com- binations to be accounted for under the purchase method of accounting, was effective for business combinations initiated after June 30, 2001. Under the new rules of SFAS No. 142, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Accord- ingly, the Corporation will apply the new rules on accounting for goodwill and other intangible assets beginning in 2002. Application of the nonamortization provisions of the statement is expected to increase operating income in 2002 by approximately $1.8 million, however, the final allocation of the purchase price to goodwill and other intangible assets for the 2001 acquisitions could potentially offset this savings.The Corporation has not yet determined the final goodwill allocation or the effect that these impairment tests might have on the earnings and financial position of the Corpora- tion. See Note F to the Consolidated Financial Statements for further discussion on the intangible assets. In October, 2001, the Financial Accounting Standards Board issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long- Lived Assets.”This statement defines the accounting for long-lived assets to be held and used, assets held for sale and assets to be dis- posed of by other than sale and is effective for fiscal years beginning after December 15, 2001.The Corporation has not yet determined the impact of this pronouncement. Recent Development On February 20, 2002, the Corporation entered into an agreement to acquire the stock of Penny and Giles Controls Ltd., Penny and Giles Controls Inc., and Penny and Giles Aerospace Ltd., substantially all of the assets of Autronics Corporation and the assets of Penny & Giles International Plc. devoted to its aerospace components busi- ness from Spirent Plc., a British based company.The purchase price of the acquisition, subject to adjustment as provided for in the Share and Asset Purchase Agreement was $60 million in cash and the assumption of certain liabilities. Management’s intention is to fund approximately half of the purchase price from credit available under the Corporation’s Revolving Credit facility. Revenues of the purchased businesses totaled approximately $62 million for the year ending December 31, 2001. See Note 18 to the Consolidated Financial Statements for further information. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation is exposed to certain market risks from changes in interest rates and foreign currency exchange rates as a result of its global operating and financing activities. Although foreign currency translation had an adverse impact on sales and operating income in 2001, the Corporation seeks to minimize the risks from these interest rate and foreign currency exchange rate fluctuations through its normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instru- ments.The Corporation did not use such instruments for trading or other speculative purposes and did not use leveraged derivative financial instruments during the year ended December 31, 2001. Information regarding the Corporation’s accounting policy on financial instruments is contained in Note G to the Consolidated Financial Statements. The Corporation’s market risk for a change in interest rates relates primarily to the debt obligations. Approximately 63% of the Corpo- ration’s debt at December 31, 2001 and 62% of the December 31, 2 4 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S 2000 debt is comprised of Industrial Revenue Bond financing. As described in Note 10 to the Consolidated Financial Statements, to mitigate its currency exposure, the Corporation has outstanding variable rate debt borrowings of 13,200,000 Swiss Francs as of December 31, 2001 under its revolving credit agreement, arising from the purchase of SIG Antriebstechnik AG. Financial instruments expose the Corporation to counter-party credit risk for nonperformance and to market risk for changes in interest and currency rates.The Corporation manages exposure to counter-party credit risk through specific minimum credit stan- dards, diversification of counter-parties and procedures to monitor concentrations of credit risk.The Corporation monitors the impact of market risk on the fair value and cash flows of its investments by considering reasonably possible changes in interest rates and by limiting the amount of potential interest and currency rate exposures to amounts that are not material to the Corporation’s consolidated results of operations and cash flows. r2d7757p24p25 3/25/02 10:47 AM Page 25 REPORT OF THE CORPORATION The consolidated financial statements appearing on pages 26 through 44 of this Annual Report have been prepared by the Corpo- ration in conformity with generally accepted accounting principles. The financial statements necessarily include some amounts that are based on the best estimates and judgments of the Corporation. Other financial information in the Annual Report is consistent with that in the financial statements. The Corporation maintains accounting systems, procedures and internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with the appropriate corporate author- ization and are properly recorded.The accounting systems and internal accounting controls are augmented by written policies and procedures; organizational structure providing for a division of responsibilities; selection and training of qualified personnel and an internal audit program.The design, monitoring, and revision of internal accounting control systems involve, among other things, management’s judgment with respect to the relative cost and expected benefits of specific control measures. PricewaterhouseCoopers LLP, independent certified public accoun- tants, have examined the Corporation’s consolidated financial statements as stated in their report below.Their examination included a study and evaluation of the Corporation’s accounting systems, procedures and internal controls, and tests and other auditing procedures, all of a scope deemed necessary by them to support their opinion as to the fairness of the financial statements. The Audit Committee of the board of directors, composed entirely of directors from outside the Corporation, among other things, makes recommendations to the board as to the nomination of independent auditors for appointment by stockholders and consid- ers the scope of the independent auditors’ examination, the audit results and the adequacy of internal accounting controls of the Cor- poration.The independent auditors have direct access to the Audit Committee, and they meet with the committee from time to time with and without management present, to discuss accounting, auditing, internal control and financial reporting matters. REPORT OF INDEPENDENT ACCOUNTANTS To the Boa rd of Directors and Sha reholders of Cur tiss-Wr ig ht Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Curtiss-Wright Corporation and its sub- sidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits of these statements in accordance with auditing standards gener- ally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial state- ment presentation.We believe that our audits provide a reasonable basis for our opinion. Florham Park, New Jersey February 1, 2002, except for Note 18 as to which the date is February 22, 2002. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 2 5 r2d7757p26p29 3/25/02 10:47 AM Page 26 CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, (In thousands, except per share data) 2001 2000 1999 Net sales Cost of sales Gross profit Research and development costs Selling expenses General and administrative expenses Gain from insurance company demutalization Environmental remediation and administrative expenses, net of (recoveries) Operating income Investment income, net Rental income, net Pension income, net Gain on sale of real property Other income (expense), net Interest expense Earnings before income taxes Provision for income taxes Net earnings Net Earnings per Share: Basic earnings per share Diluted earnings per share See notes to consolidated financial statements. $343,167 215,350 $329,575 208,605 $293,263 190,852 127,817 4,383 18,325 60,764 (2,980) 167 47,158 2,599 3,312 11,042 38,882 384 (1,180) 102,197 39,317 120,970 3,443 18,591 49,792 — (3,041) 52,185 2,862 3,638 7,813 1,436 (220) (1,743) 65,971 24,897 102,411 2,801 17,015 43,121 — (11,683) 51,157 2,295 4,580 6,574 — (8) (1,289) 63,309 24,264 62,880 $ 41,074 $ 39,045 $ $ 6.25 6.14 $ $ 4.10 4.03 $ $ 3.86 3.82 2 6 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p26p29 3/25/02 10:47 AM Page 27 CONSOLIDATED BALANCE SHEETS At December 31, (In thousands) Assets: Current assets: Cash and cash equivalents Short-term investments Receivables, net Inventories, net Deferred tax assets, net Other current assets Total current assets Property, plant and equipment, at cost: Land Buildings and improvements Machinery, equipment and other Less accumulated depreciation Property, plant and equipment, net Prepaid pension costs Goodwill and other intangible assets, net Property held for sale Other assets Total assets Liabilities: Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes, net Accrued postretirement benefit costs Other liabilities Total liabilities Contingencies and Commitments (Notes 10, 11, 13, 15 & 17) Stockholders’ Equity: Preferred stock, $1 par value, 650,000 shares authorized, none issued Common stock, $1 par value, 11,250,000 shares authorized, 10,617,600 shares issued at December 31, 2001 and 15,000,000 issued at December 31, 2000; outstanding shares were 5,692,325 at December 31, 2001 and 10,017,280 at December 31, 2000 Class B common stock, $1 par value, 11,250,000 shares authorized; 4,382,400 shares issued; outstanding shares were 4,382,400 at December 31, 2001 Additional paid-in capital Retained earnings Unearned portion of restricted stock Accumulated other comprehensive income Less: Common treasury stock, at cost (4,925,275 shares at December 31, 2001 and 4,982,720 shares at December 31, 2000) Total stockholders’ equity Total liabilities and stockholders’ equity See notes to consolidated financial statements. 2001 2000 $ 25,495 41,658 86,354 57,115 9,565 5,770 $ 8,692 62,766 67,815 50,002 9,378 3,419 225,957 202,072 6,201 55,303 164,931 226,435 121,914 104,521 70,796 90,914 2,460 5,780 5,024 95,965 149,665 250,654 157,418 93,236 59,765 47,543 2,460 4,340 $500,428 $409,416 $ — 19,362 23,163 17,704 15,867 76,096 21,361 26,043 5,335 21,639 $ 5,347 13,766 19,389 4,157 9,634 52,293 24,730 21,689 5,479 15,001 150,474 119,192 — — 10,618 15,000 4,382 52,532 469,303 (78) (6,831) — 51,506 411,866 (22) (5,626) 529,926 472,724 179,972 349,954 182,500 290,224 $500,428 $409,416 C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 2 7 r2d7757p26p29 3/25/02 10:47 AM Page 28 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, (In thousands) 2001 2000 1999 Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Noncash pension income Net gains on sales and disposals of real estate and equipment Net (gains) losses on short-term investments Deferred income taxes Changes in operating assets and liabilities, net of businesses acquired: Proceeds from sales of short-term investments Purchases of short-term investments (Increase) decrease in receivables (Increase) decrease in inventories Increase (decrease) in progress payments (Decrease) increase in accounts payable and accrued expenses Increase (decrease) in income taxes payable Increase (decrease) in other assets Increase (decrease) in other liabilities Other, net Total adjustments Net cash provided by operating activities Cash flows from investing activities: Net proceeds from sales and disposals of real estate and equipment Additions to property, plant and equipment Acquisition of new businesses Net cash used for investing activities Cash flows from financing activities: Principal payments on long-term debt Reimbursement of recapitalization expenses Proceeds from exercise of stock options Common stock repurchases Dividends paid Net cash used for financing activities Effect of foreign currency Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure of noncash investing activities: Fair value of assets acquired Liabilities assumed Less: Cash acquired Net cash paid See notes to consolidated financial statements. 2 8 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S $ 62,880 $ 41,074 $ 39,045 14,734 (11,042) (39,018) (42) 4,167 348,911 (327,761) (7,203) (3,232) 4,186 (2,831) 12,694 (2,051) 6,763 105 14,346 (7,813) (1,390) (206) 6,886 523,656 (560,656) 3,702 11,534 (1,552) 338 (1,046) 4,499 (10,081) 838 12,864 (6,574) — 340 2,300 394,355 (353,861) 6,878 2,830 (13,057) (1,734) 151 (1,016) 241 (1,886) (1,620) (16,945) 41,831 61,260 24,129 80,876 45,201 (19,354) (58,982) 3,765 (9,506) (1,961) 2,586 (19,883) (49,322) (33,135) (7,702) (66,619) (8,228) 1,750 1,804 — (5,443) (7,575) — — (1,489) (5,214) — — — (5,440) (5,257) (10,117) (14,278) (10,697) (1,205) (3,004) 16,803 8,692 $ 25,495 (855) 9,547 $ 8,692 $ 178 3,738 5,809 9,547 $ 78,979 (14,829) (5,168) $ 2,231 (270) — $ 54,868 (5,034) (512) $ 58,982 $ 1,961 $ 49,322 r2d7757p26p29 3/25/02 10:47 AM Page 29 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Class B Common Stock Additional Paid in Capital Accumulated Other Unearned Portion of Restricted Comprehensive Comprehensive Income Income Retained Earnings Stock Awards Treasury Stock $51,669 $342,218 $(40) $(2,800) $176,454 December 31, 1998 $15,000 $ Comprehensive income: Net earnings Translation adjustments, net Total comprehensive income Dividends paid Common stock repurchase Stock options exercised, net Amortization of earned portion of restricted stock awards — — — — — — — December 31, 1999 15,000 Comprehensive income: Net earnings Translation adjustments, net Total comprehensive income Dividends paid Common stock repurchase Stock options exercised, net Restricted stock awards Amortization of earned portion of restricted stock awards — — — — — — — — December 31, 2000 15,000 Comprehensive income: Net earnings Translation adjustments, net Total comprehensive income Dividends paid Common stock repurchase Stock options exercised, net Restricted stock awards Amortization of earned portion of restricted stock awards Recapitalization — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (70) 39,045 — — (5,257) — — — — 51,599 376,006 — — — — — (94) 1 41,074 — — (5,214) — — — — — 51,506 411,866 — — — — — (730) 6 62,880 — — (5,443) — — — — — — — — — 16 (24) — — — — — — (15) 17 (22) — — — — — — (77) 21 — — 178 — — — — — (2,622) — (3,004) — — — — — — (5,626) — (1,205) — — — — — — — $39,045 178 $39,223 $41,074 (3,004) $38,070 $62,880 (1,205) $61,675 — — — — 5,440 (290) — 181,604 — — — — 1,489 (579) (14) — 182,500 — — — — — (2,456) (72) — — — (4,382) — 4,382 — 1,750 — — December 31, 2001 $10,618 $4,382 $52,532 $469,303 $(78) $(6,831) $179,972 See notes to consolidated financial statements. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 2 9 r2d7757p30p46 3/25/02 10:48 AM Page 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 . Summa r y of Significant Accounting Policies Curtiss-Wright Corporation and its subsidiaries (the “Corporation”) is a diversified multinational manufacturing and service company that designs, manufactures and overhauls precision components and systems and provides highly engineered services to the aero- space, defense, automotive, shipbuilding, processing, oil, petro- chemical, agricultural equipment, railroad, power generation, security, and metalworking industries. Operations are conducted through 13 manufacturing facilities, 41 metal treatment service facilities and 4 aerospace component overhaul locations. A. Principles of Consolidation The financial statements of the Corporation have been prepared in conformity with accounting principles generally accepted in the United States and such preparation has required the use of management’s best estimates and judgments in presenting the consolidated accounts of the Corporation, after elimination of all significant intercompany transactions and accounts. Manage- ment’s best estimates include assumptions that affect the reported amount of assets, liabilities, revenue and expenses in the accompa- nying financial statements.The most significant of these estimates include the estimate of costs to complete long-term contracts under the percentage of completion accounting method and the estimate of future environmental costs. Actual results may differ from these estimates. Certain prior year information has been reclassified to conform to current presentation. B. Cash Equivalents Cash equivalents consist of money market funds and commercial paper that are readily convertible into cash, all with original matu- rity dates of three months or less. C. Progress Payments Progress payments received under prime contracts and subcontracts have been deducted from receivables and inventories, as disclosed in Notes 6 and 7. With respect to government contracts, the government has a lien on all materials and work-in-process to the extent of progress payments. D. Revenue Recognition The Corporation records sales and related profits for the majority of its operations as units are shipped or services are rendered. Sales and estimated profits under certain long-term contracts are recog- nized under the percentage-of-completion method of accounting. Profits are recorded pro rata, based upon current estimates of direct and indirect costs to complete such contracts. 3 0 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S Losses on contracts are provided for in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known. In accordance with industry practice, inventoried costs contain amounts relating to contracts and programs with long production cycles, a portion of which will not be realized within one year. E. Property, Plant and Equipment Property, plant and equipment are carried at cost. Major renewals and betterments are capitalized, while maintenance and repairs that do not improve or extend the life of the asset are expensed in the period they occur. Depreciation is computed using the straight-line method based upon the estimated useful lives of the respective assets. Average useful lives for property and equipment are as follows: Buildings and improvements Machinery, equipment and other 5 to 40 years 3 to 15 years F. Intangible Assets Intangible assets consist primarily of the excess purchase price of the acquisitions over the fair value of net assets acquired.The Cor- poration amortizes such costs on a straight-line basis over the esti- mated period benefited but not exceeding 30 years. Amortization of intangibles, consisting primarily of goodwill, totaled $3,067,000, $2,561,000 and $1,618,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Corporation reviews the recoverability of all long-term assets, including the related amortization period, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable.The Corporation determines whether there has been an impairment by comparing the anticipated undis- counted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value which is either determined based on discounted cash flows or appraised values, depending on the nature of the asset.There were no such write-downs in 2001, 2000, or 1999. In addition, please refer to Note N for information regarding new rules governing the accounting for goodwill and other intangible assets. G. Fair Value of Financial Instruments The financial instruments with which the Corporation is involved are primarily of a traditional nature.The Corporation’s short-term investments are comprised of equity and debt securities, all classi- fied as trading securities, which are carried at their fair value based upon the quoted market prices of those investments at period end. r2d7757p30p46 3/25/02 10:48 AM Page 31 Accordingly, net realized and unrealized gains and losses on trading securities are included in net earnings. Due to the short maturities of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the net book value of these financial instru- ments are deemed to approximate fair value.The carrying amount of long-term debt approximates fair value because the interest rates are reset periodically to reflect current market conditions. H. Research and Development The Company funds research and development programs for commercial products and independent research and development and bid and proposal work related to government products. Development costs include engineering and field support for new customer requirements. Research and development costs are expensed as incurred. I. Environmental Costs The Corporation establishes a reserve for a potential environmental remediation liability when it concludes that a determination of legal liability is probable, based upon the advice of counsel. Such amounts, if quantifiable, reflect the Corporation’s estimate of the amount of that liability. If only a range of potential liability can be estimated, a reserve will be established at the low end of that range. Such reserves, which are reviewed quarterly, represent the current value of antici- pated remediation not recognizing any recovery from insurance carriers, or third-party legal actions, and are not discounted. J. Accounting for Stock-Based Compensation The Corporation follows Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (APB No. 25), in accounting for its employee stock options, rather than the alterna- tive method of accounting provided under Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Com- pensation” (SFAS No. 123). Under APB No. 25, the Corporation does not recognize compensation expense on stock options granted to employees when the exercise price of the options is equal to the market price of the underlying stock on the date of the grant. Further information concerning options granted under the Corporation’s Long-Term Incentive Plan is provided in Note 12. K. Capital Stock In February 2001, the Company increased the authorized number of shares for repurchase under its existing stock buyback program by 600,000 shares.This increase is an addition to the previous autho- rization of 300,000 shares. Purchases were authorized to be made from time to time in the open market or privately negotiated transactions, depending on market and other conditions, based upon the belief of management that the market price of the stock did not adequately reflect the true value of the Corporation and, therefore, represented an attractive investment opportunity.The shares are held at cost and reissuance is recorded at the weighted average cost.Through December 31, 2001, the Corporation has repurchased 210,930 shares under this program.There was no stock repurchased in 2001. L. Earnings Per Share The Corporation is required to report both basic earnings per share (EPS), based on the weighted average number of Common and Class B shares outstanding, and diluted earnings per share based on the basic EPS adjusted for all potentially dilutive shares issuable. At December 31, 2001, the Corporation had approximately 119,000 additional stock options outstanding that could potentially dilute basic EPS in the future.The effect of these options was not included in the computation of diluted EPS for 2001 because to do so would have been antidilutive.The Corporation had antidilutive options outstanding of approximately 124,000 at December 31, 2000 and approximately 334,000 at December 31, 1999. Earnings per share calculations for the years ended December 31, 2001, 2000, and 1999 are as follows: (In thousands, except per share data) 2001: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock compensation Weighted Average Earnings Shares Income Outstanding(1) Per Share Net $ 62,880 10,061 $6.25 — — 172 3 Diluted earnings per share $ 62,880 10,236 $6.14 2000: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock compensation $41,074 10,015 $4.10 — — 176 3 Diluted earnings per share $41,074 10,194 $4.03 1999: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock compensation $39,045 10,115 $3.86 — — 99 1 Diluted earnings per share $39,045 10,215 $3.82 (1) Shares in 2001 include the Corporation’s Common and Class B shares. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 3 1 r2d7757p30p46 3/25/02 10:48 AM Page 32 M. Accounting for Derivatives and Hedging Activities The Corporation adopted Statement of Financial Accounting Stan- dard No. 133,“Accounting for Derivatives and Hedging Activities,” effective January 1, 2001.The adoption of this standard had no material effect on the Corporation’s results of operation or financial condition due to its limited use of derivatives. N. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board issued State- ment of Financial Accounting Standard (“SFAS”) No. 141,“Business Combinations” and SFAS No. 142,“Goodwill and Other Intangible Assets.” SFAS No. 141, which requires all business combinations to be accounted for under the purchase method of accounting, is effective for business combinations initiated after June 30, 2001. Under the new rules of SFAS No. 142, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years begin- ning after December 15, 2001. Accordingly, the Corporation will apply the new rules on accounting for goodwill and other intangible assets beginning in 2002. Application of the nonamortization provisions of the statement is expected to increase operating income in 2002 by approximately $1.8 million, however, the final allocation of the purchase price to goodwill and other intangible assets for the 2001 acquisitions could potentially offset this savings. The Corporation has not yet determined the final goodwill alloca- tion or the effect that these impairment tests might have on the earnings and financial position of the Corporation. See Note F for further discussion of the intangible assets. In October, 2001, the Financial Accounting Standards Board issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long- Lived Assets”.This statement defines the accounting for long-lived assets to be held and used, assets held for sale and assets to be dis- posed of by other than sale and is effective for fiscal years beginning after December 15, 2001.The Corporation has not yet determined the impact of this pronouncement. 2. Acq uisitions The Corporation acquired seven businesses in 2001, one business in 2000 and three businesses in 1999, as described below. All acqui- sitions have been accounted for as purchases with the excess of the purchase price over the estimated fair value of the net assets acquired recorded primarily as goodwill.The Corporation has made a preliminary estimate of the value of identifiable intangibles with a finite life and recorded amortization in 2001 based upon the estimated useful life of those intangible assets identified.The Corporation will adjust these estimates based upon third party appraisals, when finalized.The results of each operation have been included in the consolidated financial results of the Corporation from the date of acquisition in the segment indicated as follows: Motion Control Lau Defense Systems and Vista Controls On November 1, 2001 the Corporation acquired the assets of Lau Defense Systems (“LDS”) and the stock of Vista Controls, Inc. (“Vista”). LDS and Vista design and manufacture “mission-critical” electronic control systems primarily for the defense market. In addition, an agreement was reached for the negotiation of licenses for facial recognition products for certain U.S. Government and industrial markets.The businesses acquired have operating facili- ties located in Littleton, Massachusetts and Santa Clarita, California. The purchase price of the acquisition, subject to adjustment as provided for in the purchase agreement, was $41 million in cash and the assumption of certain liabilities.There are provisions in the agreement for additional payments upon the achievement of certain financial performance criteria over the next five years up to a maximum additional payment of $22 million.This acquisition was accounted for as a purchase in the fourth quarter of 2001.The excess of the purchase price over the fair value of the net assets acquired is approximately $35.7 million.The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. Flow Control Solent & Pratt On March 23, 2001, the Corporation acquired the operating assets of Solent & Pratt Ltd. (“Solent & Pratt”). Solent & Pratt is a manufac- turer of high performance butterfly valves and is a global supplier to the petroleum, petrochemical, chemical and process industries. The operations are located in Bridport, England and will continue to operate under the Solent & Pratt name. 3 2 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p30p46 3/25/02 10:48 AM Page 33 The Corporation purchased the assets of Solent & Pratt for approxi- mately $1.5 million in cash and assumed certain liabilities.There are provisions in the agreement for additional payments upon the achievement of certain performance criteria over the next five years.The acquisition was accounted for as a purchase in the first quarter of 2001.The excess of the purchase price over the fair value of the net assets acquired is currently estimated at $2.4 million. The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. Peerless Instrument Company On November 8, 2001, the Corporation acquired the stock of Peer- less Instrument Co., Inc. (“Peerless”). Peerless is an engineering and manufacturing company that designs and produces custom control components and systems for flow control applications primarily to the U.S. Nuclear Naval program.The business is located in Elmhurst, New York.The purchase price of the acquisition, subject to adjust- ment as provided for in the purchase agreement, was $7 million plus the assumption of certain liabilities.This acquisition has been accounted for as a purchase in the fourth quarter of 2001.The excess of the purchase price over the fair value of the net assets acquired is approximately $3.3 million.The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. Deltavalve On December 12, 2001, the Corporation acquired the operating assets of Deltavalve USA, LLC (“Deltavalve”). Deltavalve designs, engineers and manufactures industrial valves used in high pres- sure, extreme temperature and corrosive plant environments. Deltavalve is located in Salt Lake City, Utah with an assembly and test facility in Calgary, Alberta, Canada. The Corporation acquired the net assets of Deltavalve for $6.5 million in cash, subject to adjustment as provided for in the agreement. There are provisions in the agreement for additional payments upon the achievement of certain financial performance criteria over the next five years.This acquisition was accounted for as a purchase in the fourth quarter of 2001.The excess of the purchase price over the fair value of the net assets acquired was $4.6 million. The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. Farris Engineering and Sprague Products On August 27, 1999, the Corporation completed its acquisition of the Farris Engineering (“Farris”) and Sprague Products (“Sprague”) businesses. Farris is one of the world’s leading manufacturers of pressure-relief valves for use in processing industries, which include refineries, petrochemical/chemical plants and pharmaceutical manufacturing. Products are manufactured in Brecksville, Ohio and Brantford, Ontario.The Sprague business, also located in Brecksville, Ohio, provides specialty hydraulic and pneumatic valves and air- driven pumps and gas boosters under the “Sprague”and “PowerStar” trade names for general industrial applications as well as directional control valves for truck transmissions and car transport carriers. The Corporation acquired the net assets of the Farris and Sprague businesses for $42.9 million in cash.This acquisition was accounted for as a purchase in the third quarter of 1999.The excess of the purchase price over the fair value of the net assets acquired was $18.5 million and is being amortized over 30 years. Metal Treatment Ironbound Heat Treating Company On November 6, 2001, the Corporation acquired the commercial heat-treating assets of Ironbound Heat Treating Company (“Iron- bound”). Ironbound provides heat-treating services to markets that include tool and die, automotive, aerospace and medical compo- nents.The business is located in Roselle, New Jersey.The purchase price of the acquisition, subject to adjustment as provided for in the purchase agreement, was $4.5 million in cash and the assumption of certain liabilities.This acquisition has been accounted for as a purchase in the fourth quarter of 2001.The excess of the purchase price over the fair value of the net assets acquired is approximately $1.4 million.The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. Bodycote Thermal Processing On December 19, 2001, the Corporation acquired the Wichita, Kansas Heat Treating operation of Bodycote Thermal Processing. This operation provides heat treating services to a number of industries including aerospace and agriculture. The purchase price of the acquisition was $3.6 million.This acqui- sition has been accounted for as a purchase in the fourth quarter of 2001.The preliminary estimate of the fair value of the assets acquired approximates the purchase price. However, these estimates may be revised at a later date. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 3 3 r2d7757p30p46 3/25/02 10:48 AM Page 34 EF Quality Heat Treating Company On December 14, 2000, the Corporation acquired EF Quality Heat Treating Company (“EF”), a Midwest provider of heat treating ser- vices primarily to the automotive industry. EF provides atmosphere normalizing, annealing and stress relieving services from its Salem, Ohio location. The Corporation acquired the net assets of the EF business for approximately $2.2 million.This acquisition has been accounted for as a purchase in the fourth quarter of 2000.The excess of the purchase price over the fair value of the net assets acquired is approximately $1.0 million and is being amortized over 25 years. Metallurgical Processing Inc. On June 30, 1999, the Corporation acquired Metallurgical Processing, Inc. (“MPI”), a supplier of commercial heat-treating services, primar- ily to the automotive and industrial markets. MPI provides a number of metal-treatment processes including carburizing, hardening, and carbonitriding and services a broad spectrum of customers from its Fort Wayne, Indiana location. The Corporation acquired the stock of MPI for $7.4 million in cash and accounted for the acquisition as a purchase in the second quarter of 1999.The excess of the purchase price over the fair value of the net assets acquired was $2.2 million and is being amortized over 25 years. 3. Divestitures On December 20, 2001, the Corporation sold its Wood-Ridge Business Complex for $51 million, which is located in Wood-Ridge, New Jersey. The business complex comprised approximately 2.3 million square feet of rental space situated on 138 acres of land. Under the sale agreement, the Corporation will retain the responsi- bility to continue the ongoing environmental remediation on the property until such time that a “no further action”letter and covenant not to sue is obtained from the New Jersey Department of Environ- mental Protection.The cost of the remediation has been previously provided for. Please refer to Note 13 for additional information. 4. Recapitalization On October 26, 2001, the Corporation’s shareholders approved a recapitalization plan, which enabled Unitrin Inc. (“Unitrin”) to distribute its approximate 44% equity interest in Curtiss-Wright to its shareholders on a tax-free basis. Under the recapitalization plan, and in order to meet certain tax requirements, Unitrin’s approximately 4.4 million common shares were exchanged for an equivalent number of shares of a new Class B Common Stock of Curtiss-Wright, which are entitled to 3 4 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S elect 80 percent of Curtiss-Wright’s Board of Directors. After such exchange, Unitrin immediately distributed the Class B shares to its approximately 8,000 registered stockholders in a tax-free distribution.The holders of the outstanding Common shares of Curtiss-Wright are entitled to elect up to 20% of the Board of Direc- tors after the distribution. Other than the right to elect Directors, the two classes of stock vote as a class (except as required by law) and are equal in all other respects.The new Class B Common Stock was listed on the New York Stock Exchange, effective November 29, 2001. In November 2000, Curtiss-Wright’s Board of Directors had approved an agreement with Unitrin related to the recapitalization plan. Under this agreement, Unitrin agreed to reimburse the Corporation for certain costs incurred in connection with the recapi- talization up to a maximum of $1.75 million.The maximum amount was received subsequent to the recapitalization and is reflected in the financial statements as Additional Paid-In Capital. Recapitaliza- tion costs of $1.5 million were incurred in 2001 and are included in general and administrative costs in the statement of earnings. 5. Shor t-term Investments The composition of short-term investments is as follows: December 31, (In thousands) Money market 2001 2000 Cost Fair Value Cost Fair Value preferred stocks $11,850 $11,850 $16,700 $16,700 Common and preferred stocks 104 208 2,104 2,166 Tax exempt revenue bonds 29,600 29,600 43,900 43,900 Total short-term investments $41,554 $41,658 $62,704 $62,766 Investment income for the years ended December 31 consists of: (In thousands) 2001 2000 1999 Interest and dividend income, net Net realized gains on the sales of short-term investments Net unrealized holding gains (losses) $2,480 $2,521 $2,361 77 42 135 274 206 (340) Investment income, net $2,599 $2,862 $2,295 r2d7757p30p46 3/25/02 10:48 AM Page 35 6. Receivables 7. Inventor ies Receivables include current notes, amounts billed to customers, claims and other receivables and unbilled revenue on long-term contracts, consisting of amounts recognized as sales but not billed. Substantially all amounts of unbilled receivables are expected to be billed and collected in the subsequent year. Credit risk is generally diversified due to the large number of entities comprising the Corporation’s customer base and their geographic dispersion.The largest single customer represented 6% of the total outstanding billed receivables at December 31, 2001 and 7% of the total outstanding billed receivables at December 31, 2000.This same customer of the Motion Control segment accounted for 13% of consolidated revenue in 2001, 13% in 2000 and 14% in 1999. In addition, the Corporation is either a prime or subcontractor of vari- ous agencies of the U.S. Government. Revenues derived directly and indirectly from government sources (primarily the U.S. Government) totaled $84,443,000, or 25% of consolidated revenue in 2001, $56,400,000, or 17% in 2000 and $50,116,000, or 17% in 1999. The Corporation performs ongoing credit evaluations of its customers and establishes appropriate allowances for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Notes receivable for 2001 includes a $2.5 million receivable from the sale of the Wood-Ridge property.This amount was subsequently collected in February 2002. See Note 3 for additional information on this divestiture. The composition of receivables is as follows: (In thousands) December 31, 2001 2000 Billed Receivables: Trade and other receivables Less: Progress payments applied Allowance for doubtful accounts $70,562 $59,904 (2,393) (2,117) (1,508) (2,659) Inventories are valued at the lower of cost (principally average cost) or market.The composition of inventories is as follows: (In thousands) December 31, 2001 2000 Raw material Work-in-process Finished goods and component parts Inventoried costs related to U.S. Government and other $25,761 $ 11,955 19,079 34,853 10,815 32,621 long-term contracts 7,248 5,961 Gross inventories Less: Inventory reserves 86,941 61,352 (14,384) (10,944) Progress payments applied, principally related to long-term contracts (15,442) (406) Inventories, net $ 57,115 $ 50,002 8. Accrued Expenses and Other Cur rent Liabilities Accrued expenses consist of the following: (In thousands) December 31, 2001 2000 Accrued compensation $11,914 $ 9,117 Accrued taxes other than income taxes Accrued insurance Accrued royalties Accrued commissions All other 1,591 2,207 1,236 1,112 5,103 2,073 1,812 631 2,118 3,638 Total accrued expenses $23,163 $19,389 Net billed receivables 66,052 55,737 Other current liabilities consist of the following: Unbilled Receivables: Recoverable costs and estimated earnings not billed Less: Progress payments applied 24,799 18,091 (8,015) (7,040) Net unbilled receivables 16,784 11,051 Notes Receivable Receivables, net 3,518 1,027 on acquisitions $86,354 $67,815 All other (In thousands) December 31, 2001 2000 Customer advances $ 4,167 $ 3,734 Current portion of environmental reserves Anticipated losses on long-term contracts Estimated warranty costs Additional amounts due to sellers 2,129 1,139 1,696 2,540 4,196 1,393 1,322 849 — 2,336 Total other current liabilities $15,867 $ 9,634 C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 3 5 r2d7757p30p46 3/25/02 10:48 AM Page 36 9. Income Taxes Earnings before income taxes for the years ended December 31 consist of: The components of the Corporation’s deferred tax assets and liabilities at December 31 are as follows: (In thousands) 2001 2000 (In thousands) Domestic Foreign Total 2001 2000 1999 Deferred tax assets: $ 84,018 $48,550 $47,088 18,179 17,421 16,221 Environmental reserves Inventories Postretirement/postemployment $102,197 $65,971 $63,309 benefits The provision for income taxes for the years ended December 31 consist of: Incentive compensation Accrued vacation pay Other $ 5,275 $ 5,416 4,450 4,440 2,241 2,383 1,179 4,068 2,229 1,737 1,159 1,953 (In thousands) Current: Federal State Foreign Deferred: Federal State Foreign 2001 2000 1999 $22,656 $ 9,342 $11,843 6,048 5,829 2,571 5,809 3,619 6,000 34,533 17,722 21,462 3,763 5,953 2,143 505 516 966 256 407 252 4,784 7,175 2,802 Provision for income taxes $39,317 $24,897 $24,264 The effective tax rate varies from the U. S. federal statutory tax rate for the years ended December 31, principally due to the following: 2001 2000 1999 U.S. Federal statutory tax rate 35.0% 35.0% 35.0% Add (deduct): State and local taxes 4.2 3.5 4.1 Dividends received deduction and tax exempt income All other, net (0.5) (0.2) (0.8) — (0.8) — Effective tax rate 38.5% 37.7% 38.3% Total deferred tax assets 19,596 16,934 Deferred tax liabilities: Retirement plans Depreciation Other 26,882 22,929 5,406 3,786 4,270 2,046 Total deferred tax liabilities 36,074 29,245 Net deferred tax liabilities $16,478 $12,311 Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheets at December 31 as follows: Current deferred tax assets Noncurrent deferred tax liabilities 2001 2000 $ 9,565 $ 9,378 (26,043) (21,689) Net deferred tax liabilities $(16,478) $(12,311) Income tax payments of $18,869,000 were made in 2001, $15,466,000 in 2000, and $20,954,000 in 1999. No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($5,250,564 at December 31, 2001) considered to be permanently reinvested. It is not practicable to estimate the amount of tax that would be payable if these amounts were repatriated to the Company, however,it is expected that there would be minimal or no additional tax because of the availability of foreign tax credits. 3 6 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p30p46 3/25/02 10:48 AM Page 37 10. Long-term Debt 1 1 . Credit Agreements The Corporation has two credit agreements in effect aggregating $100,000,000 with a group of five banks.The credit agreements allow for borrowings to be denominated in a number of foreign currencies.The Revolving Credit Agreement commits a maximum of $60,000,000 to the Corporation for cash borrowings and letters of credit.The unused credit available under this facility at December 31, 2001 was $36,203,000 and was $27,086,000 at December 31, 2000. Cash borrowings under the Revolving Credit Agreement at December 31, 2001 were $7,961,000 with a weighted average interest rate during 2001 of 3.88%. Cash borrowings at December 31, 2000 were $11,330,000 with a weighted average interest rate during 2000 of 3.49%.The commitment made under the Revolving Credit Agreement expires December 20, 2004, but may be extended annually for successive one-year periods with the consent of the bank group.The Corporation also has in effect a Short-Term Credit Agreement, which allows for cash borrowings of $40,000,000, all of which was available at December 31, 2001 and December 31, 2000.The Short-Term Credit Agreement expires December 13, 2002. The Short-Term Credit Agreement may be extended for additional periods, with the consent of the bank group, for additional periods not to exceed 364 days each.The Corporation is required under these Agreements to maintain certain financial ratios, and meet certain net worth and indebtedness tests for which the Corporation is in compliance. At December 31, 2001, substantially all of the industrial revenue bond issues are collateralized by real estate, machinery and equip- ment. Certain of these issues are supported by letters of credit, which total approximately $13,666,000.The Corporation has various other letters of credit totaling approximately $2,300,000, most of which are now included under the Revolving Credit Agreement. Long-term debt at December 31 consists of the following: (In thousands) 2001 2000 Industrial Revenue Bonds, due from 2007 to 2028. Weighted average interest rate is 2.99% and 4.07% per annum for 2001 and 2000, respectively $13,400 $18,747 Revolving Credit Agreement Borrowing, due 2004. Weighted average interest rate is 3.88% for 2001 and 3.49% for 2000 Total debt 7,961 11,330 21,361 30,077 Less: Current portion — (5,347) Total Long-term debt $21,361 $24,730 Debt under the Corporation’s revolving credit agreement is denominated in Swiss francs. Actual borrowings were 13,200,000 and 18,250,000 Swiss francs at December 31, 2001 and 2000, respectively.The carrying amount of long-term debt approximates fair value because the interest rates are reset periodically to reflect market conditions and rates. Aggregate maturities of debt are as follows: (In thousands) 2002 2003 2004 2005 2006 2007 and beyond $ — — 7,961 — — 13,400 $21,361 Interest payments of approximately $826,000, $1,006,000 and $818,000 were made in 2001, 2000 and 1999, respectively. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 3 7 r2d7757p30p46 3/25/02 10:48 AM Page 38 1 2. Stock Compensation Plans Stock-Based Compensation: Pro forma information regarding net earnings and earnings per share is required by SFAS No. 123 and has been determined as if the Corporation had accounted for its 2001, 2000 and 1999 employee stock option grants under the fair value method of that Statement. Information with regard to the number of options granted, market price of the grants, vesting requirements and the maximum term of the options granted appears by plan type in the sections below.The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: Risk-free interest rate Expected volatility Expected dividend yield Weighted average option life 2001 2000 1999 4.66% 5.87% 6.09% 24.18% 23.96% 25.06% 1.37% 7 years 1.09% 1.37% 7 years 7 years The estimated fair value of the option grants are amortized to expense over the options’ vesting period beginning January 1 of the following year, due to the timing of the grants.The Corporation’s pro forma information for the years ended December 31, 2001, 2000 and 1999 is as follows: (In thousands, except per share data) 2001 2000 1999 Net earnings: As reported Pro forma Net earnings per share: As reported: Basic Diluted Pro forma: Basic Diluted $ 6.25 $ 4.10 $ 3.86 $ 6.14 $ 4.03 $ 3.82 $ 6.13 $ 4.00 $ 3.80 $ 6.03 $ 3.93 $ 3.76 Long-Term Incentive Plan: Under a Long-Term Incentive Plan (“LTI Plan”) approved by stockholders in 1995, an aggregate total of 1,000,000 shares of common stock were reserved for issuance under said LTI Plan. No more than 50,000 shares of common stock subject to the LTI Plan may be awarded in any year to any one participant in the LTI Plan. 3 8 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S Under this LTI Plan, the Corporation awarded 2,439,805 performance units in 2001, 1,604,825 in 2000 and 1,539,778 in 1999 to certain key employees.The performance units are denominated in dollars and are contingent upon the satisfaction of performance objectives keyed to profitable growth over a period of three fiscal years com- mencing with the fiscal year following such awards.The anticipated cost of such awards is expensed over the three-year performance period. However, the actual cost of the performance units may vary from total value of the awards depending upon the degree to which the key performance objectives are met. Under this LTI Plan, the Corporation has granted nonqualified stock options in 2001, 2000, and 1999 to key employees. Stock options granted under this LTI Plan expire ten years after the date of the grant and are usually exercisable as follows: up to one-third of the grant after one full year, up to two-thirds of the grant after two full years and in full three years from the date of grant. Stock option activity during the periods is indicated as follows: Weighted Average Exercise Options Price Exercisable $28.63 242,071 37.82 21.01 34.78 30.92 47.72 22.93 37.18 310,586 34.19 396,049 43.70 22.02 43.96 Shares 436,501 147,551 (6,155) (20,276) 557,621 124,398 (16,080) (13,225) 652,714 206,762 (53,832) (10,687) Outstanding at December 31, 1998 Granted Exercised Forfeited Granted Exercised Forfeited Outstanding at December 31, 2000 Granted Exercised Forfeited Outstanding at December 31, 2001 794,957 $37.65 468,074 $62,880 $41,074 $39,045 $61,683 $40,074 $38,430 Outstanding at December 31, 1999 r2d7757p30p46 3/25/02 10:48 AM Page 39 Stock Plan for Non-Employee Directors: The Stock Plan for Non- Employee Directors (“Stock Plan”), approved by stockholders in 1996, authorized the grant of restricted stock awards and, at the option of the Directors, the payment of regular stipulated compensation and meeting fees in equivalent shares. Pursuant to the terms of the Stock Plan, on the fifth anniversary of the initial grant, those non- employee directors who still remain as a non-employee director, shall receive an additional grant equal to the product of increasing $13,300 at an annual rate of 2.96%, compounded monthly from the effective date of the Stock Plan.The amount of that per director grant was determined to be $15,419 representing a total additional grant of 1,555 shares.The cost of the restricted stock awards is being amortized over a five-year restriction period from the date of grant. At December 31, 2001, the Corporation had provided for an aggregate additional 11,630 shares, at an average price of $36.41, for its non- employee directors pursuant to election by directors to receive such shares in lieu of payment for earned compensation under the Stock Plan. Depending on the extent to which the non-employee directors elect to receive future compensation in shares, total awards under this Stock Plan could reach or exceed 16,000 shares by April 12, 2006, the termination date of the Stock Plan. Pursuant to elections, 2,442 shares were issued as compensation in 2001 under the Stock Plan. 1 3. Environmental Costs The Corporation has continued the operation of the ground water and soil remediation activities at the Wood-Ridge, New Jersey site through 2001.The cost of constructing and operating this site was provided for in 1990 when the Corporation established a $21,000,000 reserve to remediate the property. Costs for operating and main- taining this site totaled $546,000 in 2001, $490,000 in 2000 and $563,000 in 1999, all of which have been charged against the previ- ously established reserve. Even though this property was sold in December 2001 (see Note 3), the Corporation remains responsible for the completion of this on-going remediation post-sale. The Corporation has previously filed lawsuits against several insur- ance carriers seeking recovery for environmental costs.The Corpora- tion settled with one carrier in 1998 and two carriers in 1999. During 2000, the Corporation settled with the remaining carriers. The Corporation has been named as a potentially responsible party, as have many other corporations and municipalities, in a number of environmental clean-up sites.The Corporation continues to make progress in resolving these claims through settlement discussions and payments from established reserves. Significant sites remain- ing open at the end of the year are: Caldwell Trucking landfill superfund site, Fairfield, New Jersey; Sharkey landfill superfund site, Parsippany, New Jersey; Pfohl Brothers landfill site, Cheektowaga, New York; Amenia landfill site, Amenia, New York; and Chemsol, Inc. superfund site, Piscataway, New Jersey.The Corporation believes that the outcome for any of these remaining sites will not have a materially adverse effect on the Corporation’s results of operations or financial condition. The noncurrent environmental obligation at December 31, 2001 was $9,525,000 compared to $9,925,000 at December 31, 2000 and is included in other liabilities on the Consolidated Balance Sheet. 1 4. Pension and Other Postretirement Benefit Plans The Corporation maintains a noncontributory defined benefit pen- sion plan covering substantially all employees.The Curtiss-Wright Retirement Plan (“Plan”) formula for nonunion employees is based on years of credited service and the five highest consecutive years’ compensation during the last ten years of service and a “cash balance” benefit. Union employees who have negotiated a benefit under this Plan are entitled to a benefit based on years of service multiplied by a monthly pension rate. Employees are eligible to participate in this Plan after one year of service and are vested after five years of service. At December 31, 2001 and December 31, 2000, the Corporation had prepaid pension costs of $70,796,000 and $59,765,000, respectively, under this Plan. At December 31, 2001, approximately 36% of the Plan’s assets are invested in debt securi- ties, including a portion in U.S. Government issues. Approximately 64% of Plan assets are invested in equity securities. The Corporation also maintains a nonqualified Restoration Plan covering those employees whose compensation or benefits exceeds the IRS limitation for pension benefits. Benefits under this Plan are not funded and as such, the Corporation had an accrued pension liability of $1,139,000 and $1,226,000 at December 31, 2001 and 2000, respectively. In addition, the Corporation had foreign pension costs under retirement plans of $975,000, $864,000 and $734,000 in 2001, 2000 and 1999, respectively. The Corporation also provides postretirement health benefits to certain employees. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 3 9 r2d7757p30p46 3/25/02 10:48 AM Page 40 (In thousands) 2001 2000 2001 2000 Pension Benefits Postretirement Benefits Change in Benefit Obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participants’ contributions Actuarial (gain) loss Benefits paid Change due to curtailment of benefits $103,427 $106,965 $ 2,027 $ 3,955 4,740 7,113 — (4) (11,932) — 4,803 7,256 — 2,022 (17,619) — 112 126 33 (217) (91) — 118 181 158 (168) (280) (1,937) Benefit obligation at end of year 103,344 103,427 1,990 2,027 Change in Plan Assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Plan participants’ contribution Benefits paid Fair value of plan assets at end of year Funded status Unrecognized net actuarial gain Unrecognized transition obligation Unrecognized prior service costs Prepaid (accrued) benefit costs Components of Net Periodic Benefit Cost (Revenue): Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of transition obligation Recognized net actuarial gain Benefit cost reduction due to curtailment Cost of settlement 252,682 (23,882) 76 — 237,813 30,107 2,381 — (11,932) (17,619) 216,944 252,682 113,601 (44,220) (18) 294 149,255 (88,765) (2,206) 255 — — 58 34 (92) — (1,990) (2,548) — (797) — — 122 158 (280) — (2,027) (2,532) — (920) $ 69,657 $ 58,539 $(5,335) $(5,479) $ 4,740 $ 4,803 $ 112 $ 7,113 (18,089) (40) (2,188) (2,578) — — 7,256 (16,973) (36) (2,188) (2,090) — 1,415 126 — (123) — (200) — — 118 181 — (123) — (200) (2,890) — Net periodic benefit revenue $ (11,042) $ (7,813) $ (85) $(2,914) Weighted-average assumptions as of December 31: Discount rate Expected return on plan assets Rate of compensation increase 7.00% 8.50% 4.50% 7.00% 8.50% 4.50% 7.00% 7.00% — — — — 4 0 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p30p46 3/25/02 10:48 AM Page 41 For measurement purposes, a 7.46% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001.The rate was assumed to decrease gradually to 5.50% over the next seven years and remaining at that level thereafter. At December 31, 2001, the approximate future minimum rental income and commitments under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows: Effect of change in health care cost trend on: (In thousands) 1% Increase 1% Decrease Total service and interest cost components Postretirement benefit obligation $ 37 $259 $ (31) $(218) The Corporation discontinued postretirement medical coverage for former employees of its Fairfield, NJ plant due to its closure, which resulted in income of $2,890,000 in 2000. 1 5. Leases Buildings and Improvements Leased to Others. The Corporation leases certain of its buildings and related improvements to outside parties under noncancelable operating leases. Cost and accumu- lated depreciation of the leased buildings and improvements at December 31, 2001, were $7,301,000 and $4,989,000, respectively, and at December 31, 2000, were $49,575,000 and $44,166,000, respectively. On December 20, 2001, the Corporation sold its Wood- Ridge Business Complex (see Note 3). As a result of this sale, the Corporation will no longer report net rental income from this prop- erty, which amounted to approximately $3,400,000 in 2001. Facilities and Equipment Leased from Others. The Corporation conducts a portion of its operations from leased facilities, which include manufacturing and service facilities, administrative offices and warehouses. In addition, the Corporation leases automobiles, machinery and office equipment under operating leases. Rental expenses for all operating leases amounted to approximately $4,908,000 in 2001, $4,273,000 in 2000 and $2,770,000 in 1999. (In thousands) 2002 2003 2004 2005 2006 2007 and beyond Rental Income Rental Commitment $ 220 $ 6,223 120 120 120 120 8,400 5,565 3,803 2,583 1,465 1,839 $9,100 $21,478 1 6. Industr y Segments The Corporation manages and evaluates its operations in three reportable segments: Motion Control, Metal Treatment and Flow Control.The operating segments are managed separately because each offers different products and serves different markets.The principal products and major markets of the three operating seg- ments are described in the beginning of this Annual Report. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Interest income is not reported on an operating segment basis because short-term investments and returns on those investments are aggregated and evaluated separately from business operations. Interest expense and income taxes are also not reported on an operating segment basis because they are not considered in the performance evaluation by the Corporation’s chief operating decision-maker, its Chairman and CEO. The Corporation had one commercial customer in the Motion Control segment that accounted for 13% of consolidated revenue in 2001, 13% in 2000 and 14% in 1999. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 4 1 r2d7757p30p46 3/25/02 10:48 AM Page 42 Consolidated Industr y Segment Information: (In thousands) Year Ended December 31, 2001: Motion Control(1) Metal Treatment Flow Control Segment Total Corporate & Other(2) Consolidated Total Revenue from external customers $ 137,103 $ 107,807 $ 98,257 $ 343,167 $ Intersegment revenues Operating income Depreciation and amortization expense Segment assets Expenditures for long-lived assets Year Ended December 31, 2000: Revenue from external customers Intersegment revenues Operating income Depreciation and amortization expense Segment assets Expenditures for long-lived assets Year Ended December 31, 1999: — 19,219 4,270 152,962 6,306 446 19,513 5,519 95,945 10,856 $126,771 — $105,318 508 15,383 4,086 96,955 1,776 23,502 5,031 84,538 5,451 — 10,703 4,279 108,689 1,943 $97,486 — 10,276 4,124 82,670 1,826 446 49,435 14,068 357,596 19,105 $329,575 508 49,161 13,241 264,163 9,053 Revenue from external customers $124,155 $104,143 $64,965 $293,263 $ Intersegment revenues Operating income Depreciation and amortization expense Segment assets Expenditures for long-lived assets — 8,667 5,056 112,943 3,433 337 23,551 4,407 83,350 14,530 — 6,082 2,355 95,214 1,543 337 38,300 11,818 291,507 19,506 — — 12,857 1,046 95,619 377 — — (2,277) 666 142,832 249 $ — — 3,024 1,105 145,253 453 $ 343,167 446 47,158 14,734 500,428 19,354 $329,575 508 52,185 14,346 409,416 9,506 $293,263 337 51,157 12,864 387,126 19,883 (1) Operating income for the Motion Control segment includes consolidation costs for the relocation of operations in the amount of $3.8 million for 1999. (2) Operating (loss) income for Corporate and other includes $1.5 million for recapitalization costs and $0.2 million for environmental costs in 2001; $2.8 million gain for the curtailment of postretirement benefits and $1.9 million net environmental recoveries, offset by accrued post employment cost of $0.7 million in 2000; and $12.4 million in insurance settlements, net of related expenses in 1999. 4 2 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p30p46 3/25/02 10:48 AM Page 43 Reconciliations: For the years ended December 31, (In thousands) 2001 2000 1999 Revenues: Total segment revenue Intersegment revenue Elimination of intersegment revenue Total consolidated revenues Earnings before taxes: Total segment operating income Insurance settlements, net Corporate and other Investment income, net Rental income, net Pension income, net Other income (expense), net Interest expense $343,167 $329,575 $293,263 446 (446) 508 (508) 337 (337) $343,167 $329,575 $293,263 $ 49,435 — $ 49,161 3,041 $ 38,300 11,683 (2,277) 2,599 3,312 11,042 39,266 (1,180) (17) 2,862 3,638 7,813 1,216 (1,743) 1,174 2,295 4,580 6,574 (8) (1,289) Total consolidated earnings before tax $102,197 $ 65,971 $ 63,309 Assets: Total assets for reportable segments Short-term investments Pension assets Other assets Elimination of intersegment receivables Total consolidated assets $357,596 $264,163 $291,507 41,658 70,796 30,418 (40) 62,766 59,765 22,801 (79) 25,560 50,447 19,652 (40) $500,428 $409,416 $387,126 December 31, (In thousands) 2001 2000 1999 Geographic Information: United States United Kingdom Other foreign countries Revenues(1) Long-Lived Assets Revenues(1) Long-Lived Assets Revenues(1) Long-Lived Assets $257,208 $189,508 $213,343 $214,250 $200,253 $209,370 31,340 54,619 23,047 13,880 32,133 84,099 22,666 13,738 29,762 63,248 20,986 11,644 Consolidated total $343,167 $226,435 $329,575 $250,654 $293,263 $242,000 (1) Revenues are attributed to countries based on the location of the customer. C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 4 3 r1p44 only 3/25/02 10:49 AM Page 44 17. Contingencies and Commitments 18. Subseq uent Events The Corporation’s Drive Technology (Drive Technology) subsidiary located in Switzerland entered into a sales agreement with the Spanish Ministry of Defense which contained an offset obligation for the purchase of approximately 24 million Swiss francs of prod- uct from Spanish suppliers over a seven-year period which began in 1999.The offset obligation contains two interim milestones, which if not met, could increase the total obligation by 10% per milestone. The first milestone occurred in February 2001 and was met.The next milestone occurs in February 2003. During 2001, the Corporation accrued 600,000 Swiss francs (approximately $361,000) in noncur- rent liabilities as a contingency against not achieving this milestone and/or compliance with the remainder of this agreement. Drive Technology also entered into a sales agreement with the Austrian Defense Ministry which contained an offset obligation for the purchase of approximately 18.5 million Swiss francs of product from Austrian suppliers through May 2007.This agreement con- tains no milestones but there are penalty provisions for up to 5% of the unfulfilled amount. During 2001, the Corporation has accrued approximately 154,000 ($93,000) Swiss francs in noncurrent liabili- ties as a contingency against noncompliance with the purchase obligations of this agreement. Consistent with other entities its size, the Corporation is party to several legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Corporation’s results of operations or financial position. Acquisitions On February 20, 2002, the Corporation entered into an agreement with Spirent Plc. (“Spirent”) to acquire all of the outstanding shares of Penny and Giles Controls Ltd., Penny and Giles Controls Inc., Penny and Giles Aerospace Ltd. (collectively “Penny and Giles”), sub- stantially all of the assets of Autronics Corporation (“Autronics”), and the assets of Penny & Giles International Plc. devoted to its aerospace component business.The purchase price of the acquisi- tion, subject to adjustment as provided for in the Share and Asset Purchase Agreement (the “Agreement”), is $60 million in cash and the assumption of certain liabilities.The purchase price was deter- mined as a result of arm’s length negotiations between senior management of the Corporation and Spirent. Management’s inten- tion is to fund approximately half of the purchase price from credit available under the Corporation’s Revolving Credit facility. Penny and Giles is a leading designer and manufacturer of propri- etary position sensors and control hardware for both military and commercial aerospace applications and industrial markets. Autron- ics is a leading provider of aerospace fire detection and suppression control systems, power conversion products and control electronics. The acquired business units, located in Wales, England, Germany and the United States, are intended to operate as part of the motion control segment within Curtiss-Wright Flight Systems, Inc., a wholly owned subsidiary of the Corporation. All of the acquired business units will operate in their existing location, with their existing management team and current employee workforce. Cer- tain of the assets acquired constitute equipment and other physical property, particularly furniture, fixtures and leasehold improve- ments.The Corporation intends to continue the use of these assets in substantially the same manner as previously conducted. 4 4 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S r2d7757p30p46 3/25/02 10:48 AM Page 45 CORPORATE DIRECTORY Directors Of ficers Martin R. Benante Chairman and Chief Executive Officer Martin R. Benante Chairman and Chief Executive Officer Gerald Nachman Executive Vice President Joseph Napoleon Executive Vice President George J. Yohrling Executive Vice President Michael J. Denton Secretary and General Counsel Gary J. Benschip Treasurer Glenn E. Tynan Controller Paul J. Ferdenzi Assistant Secretary Kevin M. McClurg Acting Assistant Controller Admiral James B. Busey IV Admiral, U.S. Navy (Ret.) Director, Mitre Corporation Director,Texas Instruments, Inc. Former President and Chief Executive Officer of AFCEA International Aviation Safety and Security Consultant S. Marce Fuller President and Chief Executive Officer of Mirant Corporation, Inc. (formerly known as Southern Energy, Inc.) David Lasky Former Chairman and Chief Executive Officer of Curtiss-Wright Corporation William B. Mitchell Director, Mitre Corporation Former Vice-Chairman of Texas Instruments Inc. John R. Meyers Chairman of Tru-Circle Corporation Director, Iomega Corporation Management Consultant Former Chairman of the Board of Garrett Aviation Services Dr. William W. Sihler Ronald E.Trzcinski Professor of Business Administration Darden Graduate School of Business Administration University of Virginia J. McLain Stewart Director, McKinsey & Co. Management Consultants C U R T I S S - W R I G H T A N D S U B S I D I A R I E S _ 4 5 r2d7757p30p46 3/25/02 10:48 AM Page 46 CORPORATE INFORMATION Corporate Headquarters Internet Address 1200 Wall Street West, Lyndhurst, New Jersey 07071 tel (201) 896-8400 fax (201) 438-5680 Use http://www.curtisswright.com to reach the Curtiss-Wright home page for information about Curtiss-Wright. Annual Meeting Financial Reports The 2002 annual meeting of stockholders will be held on April 26, 2002, at 2:00 p.m., at the Renaissance Meadowlands Hotel, 801 Rutherford Avenue, Rutherford, New Jersey. Stock Exchange Listing The Corporation’s common and Class B stock is listed and traded on the New York Stock Exchange.The stock transfer symbol for the common stock is CW, the symbol for the Class B is CW.B. This Annual Report includes most of the periodic financial informa- tion required to be on file with the Securities and Exchange Commission.The Company also files an Annual Report on Form 10-K, a copy of which may be obtained free of charge.These reports, as well as additional financial documents such as quarterly share- holder reports, proxy statements, and quarterly reports on Form 10-Q, may be obtained by written request to Gary J. Benschip, Treasurer, at Corporate Headquarters. Common Shareholders Stock Price Range As of December 31, 2001, the approximate number of holders of record of common stock, par value $1.00 per share, of the Corpora- tion was 3,395.The approximate number of holders of record of Class B stock, par value $1.00 per share, of the Corporation was 6,503. Stock Transfer Agent and Registrar For services such as changes of address, replacement of lost certifi- cates or dividend checks, and changes in registered ownership, or for inquiries as to account status, write to American Stock Transfer & Trust Company at 59 Maiden Lane, New York, New York 10038. Please include your name, address, and telephone number with all correspondence.Telephone inquiries may be made to (800) 416-3743. Foreign (212) 936-5100. Internet inquiries should be addressed to http://www.amstock.com. Hearing-impaired shareholders are invited to log on to the website and select the Live Chat option. Direct Stock Purchase Plan/Dividend Reinvestment Plan A plan is available to purchase or sell shares of Curtiss-Wright that provides a low cost alternative to the traditional methods of buying, holding and selling stock.The plan also provides for the automatic reinvestment of Curtiss-Wright dividends. For more information contact our transfer agent, American Stock Transfer & Trust Company toll-free at (877) 854-0844. Investor Information Investors, stockbrokers, security analysts, and others seeking information about Curtiss-Wright Corporation should contact Gary J. Benschip,Treasurer, at the Corporate Headquarters; telephone (201) 896-1751. 4 6 _ C U R T I S S - W R I G H T A N D S U B S I D I A R I E S Common High 2001 Low 2000 Low High First Quarter $51.6250 $45.6000 $40.3125 $35.0000 Second Quarter 53.7000 44.6500 39.8750 33.4375 Third Quarter Fourth Quarter 52.9500 39.8200 48.3750 36.5000 50.7000 41.1000 51.1250 43.3750 Class B First Quarter Second Quarter Third Quarter Fourth Quarter Dividends Common First Quarter Second Quarter Third Quarter Fourth Quarter Class B First Quarter Second Quarter Third Quarter Fourth Quarter 2001 Low — — High — — — — $46.4000 $39.6000 2000 Low — — — — High — — — — 2001 2000 $0.1300 $0.1300 0.1300 $0.1300 0.1300 $0.1300 0.1500 $0.1300 2001 2000 — — — $0.1500 — — — — R1D7757COV 3/25/02 10:22 AM Page 2 e c r o F r i A . . S U : t i d e r c h p a r g o t o h P 2 2 - F e a R n h o J : y h p a r g o t o h P d e t c e l e S y t i C k r o Y w e N / G C V : n g i s e D R1D7757COV 3/25/02 10:22 AM Page 1 Curtiss-Wright Corporation 1200 Wall Street West Lyndhurst, New Jersey 07071 www.curtisswright.com